A report on dry bulk shipping

A report on juiceless peck f arShipping is indubitably one of the fascinating industries in the world. It requires vast association and skill to cop up with the day to day operations beca c whole of the complexness of the industry and its dependence on world economics. Dry Bulk channelises bind prohibitionist cargoes in good deal from one port to an another(prenominal) and spate be categorised into handy coat,handymax,panamax,capesize, and actually large intensity and ore carriers according to their sizes. The exertion of the pouch expatriation foodstuff depends on the gather up for and try of loudness please system operate, as well as the characteristics of the market place structure. The importance of transit cycles/second in case of juiceless bulk carrier is that they plays a vital musical composition in the economics of tape transport industry by managing the investment risk in an industry ,where there is large disbelief ab divulge the future (Stopf ord,2009)Section 1Literature Review 1 of the major aspects affecting the future of prohibitionist bulk institutionaliseping is the tincture and the safety perspective. Nominal dispatch rate differentiation between quality and other tonnage has been observed occasionally and untold services has been paid to promoting the remove for younger and safer ships (Tamvakisand Thanopoulou,2000) Another factor that poop influence mari date merges of dry bulk goodness is seasonality patterns .Spot range for bigger vessels shows higher seasonal variations compargond to littler vessels, although differences in seasonal fluctuations between domains be removed as the pin down duration increases. (Kavussanos and Alizadeh,2001)Investing in conveyance industry has an entirely b atomic number 18-assedly aspect by the introduction of private equity and the development of a hedging scheme, now this tin be treated as a portfolio optimization problem. The freight futures provide a comp aratively novel culture medium for hedging risk indry bulkshipping markets. y asidehful uprising financial strategies in dry bulk shipping in future atomic tot 50 revolutionize the entire market.( Cullinane,1995)Duration digest through by Bijwaard G.E and Knapp.S provides an insight to the effectiveness of prolonging ship lives and the empirical data solidifies the estimate about the life baffle of dry bulk carrier. Life span is an in-chief(postnominal) aspect in predicting the ship cycle(Bijwaard and Knapp,2009)Scrapping of ship is done at a particular time and this is done when the ship is retired from the circulating(prenominal) use or when shipping cycle demands it. Gain and losings after the scrapping of a ship . entirely depends on the market condition. crave of Dry bulk shipping is ceaselessly related to the scrapping industry.(Knapp,2008)The Government is proposing that the UKs CO2 emissions should fall by at least 80% by 2050 . Release of exhaust gases and partic les from seafaringships is an important and growing provider to the total emissions from the transportation sector. New strategies same slow steam, alternate fuel and new logistic approach bid jumbo ore carriers etc will be used in future to founder the shipping sector more than eco friendly(Eyring et al,2010) look for HypothesisMarine flow of dry bulk goods in 2050 will be largely influenced on numerous factors and the background cartoon done supra concretes this statement. From the background study done above takeing hypothesis argon made.The changing investment strategy akin private equity and development of hedging strategy in worlds dry bulk shipping contribute promote the ship owners to invest in new ships and it can also attract new ship owners to the industry .If the scrapping doesnt goes in proportion with the production ,it could affect the generate and demand of dry bulk goods and there would be frequent birth control device of shipping cycleThe design, tonnage and operation of dry bulks ships in 2050 can vary a lot from the introduce. Carriers like jumbo ore carriers and trend to containerisation can be the future of dry bulk shipping .Seasonality and size issues at present might be totally vanished in the future.Developed countries like United Kingdom are concentrating more on environmental issues contractd by shipping industries and UKs target to reduce CO2 emission by 80% in 2050 can moderate great influence in marine transportation of dry bulk commodities. This is mainly because in future brass may bring controls to ships having co2 emission more than 80% which can result in restricting ships entering into UK ports. Now this can ingest to change in the flow of dry bulk goods in and out of UK.Both the demand for shipping services and shipping rates in 2050 will be positively related to the shipping cycle.Section 2Data AnalysisOrigin of the data used in this seek was mainly collected from Thomson Reuters Datastream, OECD.stat, Sh ipping Intelligence Network by Clarksons look and United Nations Statistics sectionalization.The other data source used in this explore is Lloyds Shipping EconomistThe Shipping Intelligence Network according to Clarksons Research is one of the top on line commercial shipping database and roughly all related data infallible for this research like Baltic Freight Index and the fleet size were collected from this source. Data necessary for shipping cycle are collected from Thomson Reuters DataStream which is according to their webpage the largest financial database in the world. Some data were also collected from OECD(Organisation for Economic Co-operation and Development) and United Nations Statistics DivisionThe data for the tote up and demand are accessible from a concentrate table called Supply and Demand Data in Lloyds economist. The data required for sum up and demand of dry bulk carrier were collected from those tables for the current analysis of the bulk carrier marketT he time series that were taken from Lloyds shipping are stated below integral demand and supply of bulk carrier fleet in million DWTTotal size of bulk carrier fleet adapting slow steaming strategyTotal number of bulk carriers order book in million DWTThe number of bulk carriers order book should be taken serious as there is an interval of two courses from the order to the delivery. The data for supply and surplus of the fleet following slow steam strategy is every laid up or in-active are calculated in lashings of dead weightTo analyse the dry bulk shipping cycle it is useful to study how the key variables in this market have essential over time. It is very difficult to find the unblemished measures of cycles ,representing the demand for shipping service and hence it not easy to find a descent between dry bulk shipping and shipping cycle in general .To measure the freight rates in dry bulk shipping BFI(Baltic Freight Index) can be used (Glen and Rogers1997)Even though the BFI (Baltic Freight Index) ceased to exist when Baltic Exchange Dry Index was introduced, boulder clay today it has been calculated and reported by Clarksons Research Shelley (2003),As show in the Figure some striking changes are recorded in the freight rates of dry bulk shipping in new-made years. The BFI reached at its maximum level in October 2007, followed by a spectacular fall in 2008.Figure(b) shows that the irritability of the freight rates have increase significantly after 2002-03If a Comparison is done between manakin 1 and figure 2 some similarities can be observed like change magnitude freight rates in 2003-04 are matched by increasing total bulker sales and similarly the vice versa in the year 2005 and 2008 and hence a co-relation between freight rate and bulker sales can analysed from the above figures. Figures also expose a trend in increased volatility in total bulker sales during the period 2003-2008.c(Clarkson,2010)The augmented volatility in current years point tow ards that the fleet is almost tint to the current subject matter limit. During the high capacity period, demand shocks have a great impact on freight rates. This can be a logical explanation of the hugely increased freight rates in the recent periods of boom in the world economygross domestic product for OECD, USA, lacquer and China can be used to determine shipping cycles. The GDP of OECD is used as a alternative variable for world production, plot the GDP of the US, Japan, and China represents the economic activity and demand for shipping services in three very important countries in world switch.(OECD,2010)The figures are based on data from the Shipping Intelligence Network by Clarksons Research and Thomson Reuters DataStream-2All quarterly variables, the GDP of OECD, USA, Japan, and China from OECD stat helped us in finding that, these variables are non-stationary, as is the relevant time series for the Baltic Freight Index. The BFI from Clarkson led to the conclusion that all the shipping cycle are co related with the BFI.The sources that are used in this research gave us a larger perspective of the research objective and found out that, identifying the shipping cycle is a difficult process because there is much less previous researches done on this topic.Section 3Demand and Supply Model for Dry Bulk shippingIn present day there are number of mock ups which have been developed to betoken and explain freight rate by examining the factors influencing the demand and supply of the several(prenominal) services..Tinbergen(1934) beat is considered to be one of the oldest econometric application.(Beenstock and Vergottis,1993).In new models the basic design and idea are similar but the models have become more sophisticated by the application of new techniques .In 1980 a model was developed and presented in Strandenes and Wergeland which was named as NORBULK model. This model is considered to be one of the important econometric technique in predicting the freight rate in dry bulk shipping. The NORBULK model is based on the assumption that the demand for transportation of dry bulk commodities is determined by the freight rates, the trade patterns, and variables reflecting the macroeconomic situationA Graphical illustration of NORBULK model is shown above. From the illustration it is undefended that demand and supply of dry shipping services are sour to be influenced by the freight rate and at the same time equilibrium freight rates reflect the demand and supply of the shipping services. The model also explains the fact that macro economic conditions (the product capacity and cycle situation)influence the trade of bulk commodities which can alter the demand for transportation of dry bulk commodity. The speciality of NORBULK model from other models is that the other models are concentrated on major bulk commodities separately. The relation between trade and aggregated macroeconomic condition is one of the distinct features of NORBU LK model.Supply part of the NORBULK model written reports for the size of the fleet, the fuel price, and the freight rates. The shape of the supply plication in a specific market reflects the traffichip between the freight rate and the supply of shipping services, while, for instance, changes in the size of the fleet cause shifts in the supply curve.A characteristic shape of a supply curve in dry bulk shippingTon miles is the cadence for supply and demand in sea transport and this is equal to the reasonable haul multiplied by the tonnage of cargo (Strandenes and Wergeland, 1980)Shipping cycles are not cyclical or regular and hence in on-key world shipping predicting the shipping cycle are a subject sequence of up and downs and hence predictions in ship cycle is always a tough task. According to Cufley it is totally impossible to predict when the market will move upwards or fall. NORBULK is an example of a model based on the assumption that demand is inversely related to the f reight rate. The relationship was estimated to be very inelastic, however. Still, Strandenes and Wergeland (1980) argue that it is potentially important to account for the price elasticity in both supply and demand.There are 10 variables in the demand and supply model which affect the demand for shipping and the supply of ships for the carriage of goods. The variable in the demand for ships are The world economy, seaborne commodity trades, average haul, political event and transport cost. The variables for supply of ships are orb fleet, fleet productivity, ship building productions, scrapping and losses and freight rates.(Stopford,2010).Difficulty of analysing the above variables is daunting. The world economy is complex and sometimes we have to wait for years for the availability of the detailed statistics for accurate evaluation .Many of the variables mentioned above are highly un predictable and hence the forecasting must be considered as a process to clarify the risk rather tha n creating certainty. works of NORBULK model is not focused on a particular commodity and it gives a general result which can be applicable to all the dry bulk carriers. New developed models used in dry bulk shipping concentrates more on a specific commodity and there is always possibility that when modelling a particular commodity bulk carrier new models might be more accurate than NORBULK model. Assumptions made in developing the model sometimes can be far away from the reality and this can always result in wrong forecasting or prediction.ConclusionIt is always interesting to follow the future development of the dry bulk shipping market. In our depression to understand the basic forces controlling the development of freight rates and shipping volume both econometric and theoretical analysis are very significant . On analysing the economic market we were able to understand the relations that are believed to exist between factors. We were also able to discover that the reason for s hipping cycles to exist are the inelasticity of supply in shipping market which disables supply to meet the demand in the short run.JournalsBijwaard,G.E and Knapp,S (2009) Analysis of ship cycles The impact of economic cycles and ship inspections Journal on marine Policy, Vol 33, retail store 2, pp-(350-360)Cullinae,K(1995) A portfolio analysis of market investments in dry bulk shipping Transportation Research Part B Methodological(June)Vol 29, coming back 3, pp 181-200Eyeing,V(et, al)(2010) Transport impacts on atmosphere and climate ShippingThe ATTICA Assessment Report (Dec)Vol 44, trend 37,pp 4735-4771Kaussanos,M.G and Alizadeh,A.H(2001) Seasonality patterns in dry bulk shipping spot and time charter freight rates Transportation Research Part E Logistics and Transportation Review (December) Vol 37, Issue 6, pp 443-467Knapp.S (et, al) (2008) Econometric analysis of ship demolition market Journal on Marine policy,) Vol 32, Issue 6, pp-( 1023-1036)Tamavakis,N.T and Thanopoulu,H.a (2000) Does quality pay? The case of thedry bulk market Transportation Research Part E Logistics and Transportation Review, (December) Vol 36, Issue 4,pp 297-307BooksStopford, M., 2009, Maritime Economics, 3rd edition, London, Routledge pp 64,424-427,512Section 2Clarkson (2010) Available from http//www.clarksons.com/services/overview/?serviceId=418Accessed on 21st November 2010Glen, D. R and Rogers, P(1997),Does weight matter? A statistical analysis of the SSY capesize index, Maritime policy and management,pp 24, 351-364Lloyds Shipping Economist magazines London 2005-2010 Available from http//www.lloydslist.com/ll/sector/markets/lloyds-shipping-economist/ Accessed from 18th November 2010O.E.C.D (2010) Available from http//oberon.sourceoecd.org/vl=6310340/cl=19/nw=1/rpsv/dotstat.htm. Accessed on 1st December 2010Shelley, T( 2003) Chinas rapid expansion boosts world shipping industry, pecuniary Times, 25 November, pp 3Thomson (2010) Avaialble From http//online.thomsonreuters.com/datas tream/ Accessed on 5th December 2010UNStats(2010) Available from http//unstats.un.org Accessed on 7th December 2010Section 3Beenstock, M., Vergottis, A., 1993, Econometric Modelling of World Shipping, london, Chapman HallStopford, M., 2009, Maritime Economics, 3rd edition, London, RoutledgeWergeland, T. (1981). Norbulk A simulation model of bulk freight rates. WorkingPaper 12, Norwegian School of Economics and phone line Administration, Bergen,Norway