The Brokers Report Essay

3. The Brokers Report does give an indication as to why the collapse in the shipping market occurred. But, the Broker Report does not indicate fully as to why the collapse in the market was as large as it is. To begin the analyzation of the collapse in the shipping market the Broker Report starts with the reminding the reader that in the previous report they forewarned that, “there is every reason to be nervous about how the market develops in the next 12 months” (Clarkson Research Services, 2009) which indicates that the Brokers report knew about some form of a recession was in the imminent future. But as the Brokers Report points out the warning given, “did not do justice to the severity of the economic downturn, which followed” (Clarkson

The Problems in the banking sector are elaborated upon by referring to when, “the inter-bank market ran into difficulties” (Clarkson Research Services, 2009) in August of 2007 as well as, “the collapse of Lehman Brothers in September 2008” (Clarkson Research Services, 2009). The previously stated indicators, “made it clear that that the problems were much deeper than had been publicly accepted” (Clarkson Research Services, 2009) but yet since the real economy, that is physically produced goods, had not been affected then there was little reason to worry and little reason to predict an enormous dip in economic performance. But as the financial crisis progressed the problems in the financial world consequentially, “found their way into the real economy” (Clarkson Research Services, 2009). Now with problems occurring in the real economy the production of goods and services start to slow

As, “new shipbuilding capacity developed during the boom comes on stream” (Clarkson Research Services, 2009) there is now an overcapacity of ships, and therefore supply, since for a ship to be produced it needs to be ordered around 2 years before it can be used. Consequently the ships coming online now were ordered at the high of the boom, meaning there is a lot more of supply arriving then there is demand for the new ships. Along with the excess supply of ships and the banking crisis the, “prices have fallen sharply, so the sum to be financed is generally much higher than the collateral value of the ship” (Clarkson Research Services, 2009). As a result of the sum to be financed being greater than the collateral value of the ship is that these ships are fiscally challenging to pay back, due to low prices. A result of low prices is that many of the shipping companies are unable to pay the loan on the ship back and are further in debt. Therefore, the debt cannot be paid back making the economic conditions even worse than they were. Another indicator that was not mentioned in the Brokers Report is over confidence and over speculation in the shipping