Investing in shipping industry involves lot of risk. They are prone to high level malpractices, corruption and mediocre plan failures. Also natural factors like economic crisis also cannot be ignored. Of late, there have been many financial slumps in the market leading to great distress to shipping investments. The recession period of September is considered to be the biggest crisis of recent times. It left even developed economies also in a big plight leading to huge financial disruption. Davenport Laroche reviews state that there has to be a keen eye on detail before investing in hard assets.
What causes financial crisis in shipping industry?
Investing in shipping material is, no doubt, an assured return. But there might be cases when things go upside down. For example let us consider the example of 2008 global financial crisis. There was a sudden distress when the shipping industry found itself to be in a financial downfall. There were more supply of ships and there was no adequate demand. Very soon charter ships and ocean carriers were able to understand that there was no meaning for “Economy of scale” without even the distribution of demand and supply. Also freight rates were reaching their highest ever and charter ships had to levy a buying freeze. There were no new orders for the ship builders for many days and the container ship orders also started to decline at an alarming rate and this continued till 2013 i.e, for a period of nearly 5 years.
Though many steps were taken to rescue a fast fading industry, none of them actually worked. In spite of being one of the most affected industries, it survived the crisis over a period of time. Trade fluctuations all over the world tried to hide the major problem and the shipping industry had no way out. Later vessel and container owners began ordering for bigger containers with an intention to increase their market share. As a result, they were able to construct 25 biggest container ships post 2013.
With this the industry analysed that when supply was more than demand freight rates and container values fell down to the lowest leading to a huge financial setback. The cost of new ships ordered soared up giving the industry a big blow. This led to all the confusion. Hence before investing in shipping material, it is better to attain a market know how to avoid future frustrations.