After the Great War (1914-1919) came the “Roaring Twenties” followed by the Great Depression (1929-1939). America became the richest country in the world at that time after WW I. Then on October 24th 1929 the stock market crashed and America experienced the Great Depression a few days later on October 29th 1929 . Some of the contributing factors of the Great Depression were 1. The crash of the Stock Market on Black Tuesday 2. Banks Failed (Over 9,000 in the US and over 100,000 around the world) 3. There was a reduction in purchases and investments board which led to reduction in production and loss of jobs 4. American Economic Policy (Smoot-Haley Tariff set up for imports which resulted in less trade as countries retaliated) 5. Drought Conditions …show more content…
There was a lag of the shipping cycle in responding to the wider economy. Electronics and textiles at Chinese factories piled up since the European and US consumption declined. Ships sailed half empty, if at all and shipping companies began pulling vessels out of the liner markets since demand was low. The shipping industry came to an unexpected halt and ship owners and managers argued that this was normal and typical for such an industry. The conditions the industry faced was unprecedented and based on: 1. Rampant Mistrust and Nervousness –Banks started refusing to issue loans as they were afraid of crashing and in some cases were on the verge of. The shipping of raw materials halted as banks had refused to issue letters of credit, critical to trade. 2. Abandonment of Shipyards – mass forfeiting of advances of almost half the cost of new buildings by shipping companies and lenders to minimize loss or because they lacked the finances. As load capacity increased the rate of consumption decreased causing smaller shipping companies to go bankrupt or “lay up” vessels to mitigate high operating costs with low scheduled …show more content…
Cash inflow increases and ship owners experience an unexpected large gain in finances. They purchase second hand tonnage in an attempt to capitalize on the increased level of demand second hand markets increased the value of it and are willing to pay high prices for them to meet the needs of increasing trade. Shippers are now willing to commit to long term charter parties to lock in rates and secure vessels to ensure that their cargo is transported. The banking sector gets blindsided by the amount of money moving in the shipping market and they begin loosening their lending criteria, abandoning in part or in whole prudent and basic lending principles. They are also not considering security on these loans especially if they have before them evidence of long-term charter