Shipping Industry

International shipping of containerised supplies is crucial for global trading firms to thrive in the increasingly competitive economic environment. The container shipping trade increases four times faster than that of the world seaborne trade from 1985 to 2009. This demonstrates the increasing role of container transportation and its contribution to the global economy. However, the fluctuation of the shipping market, coped with the global financial crisis, has unhinged the profitability in the container shipping industry. According to supply chain digest (Oct. 2008), the rate to ship a container from Asia to Europe plunged from $2800 to $700 at October 13, 2008. According to Drewry Shipping Consultants Ltd., compared with 2006, global carriers moved 14.7% more cargo, but earned 1.2% less revenue in 2008. Many people addressed the fluctuation of shipping freight rate. In Maritime Economics (3rd Ed), Martin Stopford described the shipping cycle in the bygone years, discussed its characteristics, frequency, and prediction difficulties. However, there is no such model for container freight market, perhaps due to the comparatively shorter history in container shipping. Similar to other markets, the freight rate in container shipping market is also determined mainly by two major forces - the supply for the container shipping service and the demand for this service. The annual world supply of container shipping service can be represented by number of TEU slots deployed in the shipping industry and the slot reuse rate, whereas the demand of such service can be approximated by the total number of containers shipped in a year. Basic economic model explains the determination of market price by equating the supply with the demand. Periodic price fluctuation is often explained by Cobweb model, assuming supply rigidity and alternative excessive supply and excessive demand. However, due to the irregular fluctuation in the shipping freight rate, it is not possible to adopt these...