Scenario analysis for shipping investment strategies

• Main Author: Shan, Xiaoyi.
• Other Authors: Lam Siu Lee
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Engineering::Maritime studies::Maritime management and business
• Online Access: http://hdl.handle.net/10356/52676
• Institution: Nanyang Technological University

This paper employs scenario analysis in formulation of ship investment strategies for different types of ship investors in the Container sector. The high volatility of the shipping business spells the difficulty to correctly deploy appropriate investment strategies to minimize risks and losses in the midst of uncertainties. Scenario analysis could thus come into place to picture different futures for investors’ better dealing with the ever-changing macro-environment. Research has also shown that although being a useful planning tool, very few studies have tried to link scenario analysis and investment strategies, including the shipping industry. A five stage scenario analysis framework was developed in the effort to design a scenario model and formulate corresponding investment strategies for the purposes of the study. Research was first done to identify factors shaping ship investment decisions. The most impactful and uncertain variables were then determined through survey with maritime professionals with ship investment experiences. A 2x2 scenario matrix was then developed as the basis for deployment of ship investment strategies. Interviews with different types of container ship investors were followed for verification of the scenario model and discussion of the applicability of the model for investing in ships. Results show that market freight rates, world trade volume and growth and level of ship acquisition prices are the most impactful and uncertain factors in determining ship investment strategies. A scenario model consisting of four distinct scenarios based on trade growth and ship prices were designed for shipping in the Year 2020. It is evaluated through the interviews that the scenario model can be applied to different extents for different types of ship investor. Also, detailed ship investment strategies have to be contemplated under the context of each company and investor’s distinct profile. Financial availability, business philosophy and model and the nature of the investors are the three major internal considerations for formulation of investment strategies under each scenario. Across container, dry bulk and tanker, investment sentiments also differ according to contrasting market dynamics, nature of cargo and trade requirements.