CYCLICALITY IN THE OIL TANKER SHIPPING INDUSTRY
Albert W. Veenstra 1 and Marcel W. Ludema 2
1 Erasmus University Rotterdam,
Rotterdam School of Management,
Rotterdam School of Economics/Centre for Maritime Economics and Logistics
PO BOX 1738
3000 DR Rotterdam
tel: +31-10-4081958
email: a.veenstra@fbk.eur.nl
2 Section of Transport Policy & Logistical Organisation,
Faculty of Technology, Policy & Management,
Delft University of Technology
m.w.ludema@tbm.tudelft.nl
ABSTRACT: The cyclical behaviour of freight rates in ocean tanker shipping has been the central question in maritime economics research for the larger part of the previous century. The tanker shipping industry is characterised by cyclicality in prices, while the demand for transport in not cyclical in nature. The cyclicality must therefore be generated within the shipping industry itself.
The Nobel prize winner Tjalling Koopmans wrote a first study about this topic in the late 1930s. He conjectured that the relationship between shipping markets and shipbuilding markets was one of the main origins of the cyclicality of freight rates. Building ships takes time, and this lag in delivery of tonnage leads to cyclicality. This work was extended by Zenon Zannetos in the late fifties with more elaborate ideas about price determination. These works employed, however, purely economic modeling in their analysis.
This paper presents a slightly different approach to shed some light on the generation of cycles in tank shipping. It employs a system dynamics approach to construct a simple model that allows the illustration and analysis of cycles in both ocean and inland tank shipping.
The model shows that even with a completely acyclical international trade environment, the shipping industry does generate cyclical patterns in some of its important characterizing variables. The paper also discusses the conditions under which these cycles appear, and the main parameters that govern the emerging patterns.
KEYWORDS: Oil tank shipping, market structure analysis, system dynamics
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