How the financial crisis will affect the ship repair yards and shipping business - Article Example

A typical argument put forward by shippers is that cyclical fluctuations in the shipping industry are typical because booms are followed by recessions. However the current financial crisis in the world has affected the industry so badly. Demand factors such as prices of other goods, production costs, demand for those other goods and the availability and the cost of finance have played a very significant role in the current decline in demand for shipping and freight services, including the decline at shipping yards for repairs.

(Guironnet, Peypoch & Solonandresana, 2009). On the other hand supply factors are determined by the demand for shipping and freight services along with the prevailing interest rates. Suppliers went on accumulating excess capacity by ordering new ships and containers to meet the rising demand then. However the demand trend did not continue as was anticipated. The financial crisis has hit hard not only ship repair and building yards but also all connected services as well. Shippers in North America, Europe and Asia have been hit so hard by it.

For instance the contracted tonnage of containerized cargo has declined by several millions of cubic feet. The annual decline has been one of the worst that industry has witnessed in the past. According to industry watchers there would be a further fall in demand for containerized cargo shipping till a few more months have lapsed. The existing contractual obligations are less likely to be honored by the buyers because losing what has already been paid is better than taking charge of a new or a repaired ship which would not be put in to service in the foreseeable future.

The current financial crisis is inevitably the result of the global economic downturn. As early as 2008 the first major signs of a global economic crisis were seen though shippers did not pay heed to advice by economists that the crisis would engulf the