Forecasting turning points in shipping freight rates: lessons from 30 years of practical effort

Abstract

We argue that it is possible to explain much of the history of the world's shipping markets since 1950 as the interaction of two balancing feedback loops: a capacity adjustment loop which creates a roughly 20-year wave, and a capacity utilization adjustment loop which generates a roughly 4-year cycle. We show how this insight has been used rather successfully since the early 1980s for practical forecasting of turning points in freight rates and the “sentiment” in the shipping market 1_4 years ahead of time. The basic mechanisms in the shipping system create a strong “deterministic backbone” which is visible through the exogenous noise, and hence predictable with useful precision. Our experience leads to a number of questions concerning system dynamics best practice for future research. Copyright © 2007 John Wiley & Sons, Ltd.