Disentangling Demand and Supply Shocks in the Shipping Freight Market: their Impact on Shipping Investments

We show that demand shocks have a greater effect on real freight rates compared to supply (fleet) shocks both historically and on impact. By contrast, supply shocks have a larger impact on net contracting activity when compared to demand shocks. This paper disentangles for the first time demand and supply shocks driving shipping freight markets and assesses their impact on net contracting activity, a key measure of shipping investments. In the process, we construct novel indices of demand for shipping transportation. Policy related issues are quantified through drawing forecast scenarios for the response of real freight rates to unexpected demand and supply changes