Scenario analysis for dry bulk shipping investment strategies

Abstract

The volatility of the shipping market can provide difficulty for shipping companies in deciding appropriate strategies to maximise profits and minimise losses. This paper illustrates the use of scenario analysis through the formation of plausible scenarios and recommends investment strategies that shipping companies can employ. Research on the common variables affecting investment decisions are identified in the literature review, with the focus on the dry bulk sector. Financial reports from the past decade are collected from five top dry bulk companies to study their newbuilding, buying, selling, and scrapping patterns. A comparison is made amongst the companies and against the market conditions during that time period. A 2x2 scenario matrix is developed with the inclusion of the variables as earlier identified. Investment strategies for the four scenarios are suggested based on a hypothesised company. Results indicate that investment strategies are influenced by the variables that are included in each scenario. Similarly, strategic considerations made by each company are unique to their business model and philosophy. Recommendations are finally presented for further research to enable a holistic approach to scenario analysis for shipping investment strategies.