Authors: Elias Karakitsos and Lambros Varnavides
Publisher: Palgrave Macmillan – 372 pages
Book Review by: Sonu Chandiram

The shipping business has become very competitive in recent decades. Having evolved from a basic transport industry into a multifaceted business influenced by business cycles and speculation in many sectors of the economy especially banking and the stock markets, it has become a business with outcomes highly difficult to predict.

This book helps those already involved in, as well those intending to enter it, understand the shipping business better. In this book, its two authors, who have extensive experience on the financial side of  shipping as well as teaching backgrounds on the maritime business, write on myriad related tasks of shipping executives, including how to:

  • View freight rates as asset prices determined as a bargaining game between charterers and owners who form expectations of future demand and supply to create a dynamic analysis of freight rates.
  • Theoretically describe ships as assets where prices are determined by demand and supply.
  • Explain how the demand for vessels is derived as a dynamic problem of fleet capacity expansion.
  • Integrate the supply and the expectations approaches to shipping cycles.
  • Integrate maritime economics with macroeconomics.

This book has been written for ship owners, managers or anyone interested in the financial aspects of the shipping business, and specifically for use as a textbook for final-year undergraduates and graduate students in maritime economics.

The coverage of this book is extensive. In order to give you a bird’s eye view of what you will find in it, as well as help you plan your studies, we give you here the titles of its three Parts and ten chapters:

  • Introduction
  • The micro-foundations of maritime economics
    • The theoretical foundations of the freight market
    • The shipyard, scrap and secondhand markets
  • The macroeconomics of shipping markets
    • The efficiency of shipping markets
    • Business cycles
    • The theory of shipping cycles
  • From theory to practice
    • The market structure of shipping and ship finance
    • The financialization of shipping markets
    • The interaction of business and shipping cycles in practice
    • Investment strategy

With numerous graphic aids such as boxes, charts, figures, mathematical formulas, and tables, Karakitsos and Varnavides help you understand the material more easily.

This book basically fills a void in the study of maritime economics. That void is the lack of a macroeconomic approach – as developed by Beenstock and Vergottis in 1993 into what is called the BVmodel, showing the relationships and interactions among freight, time charter, secondhand, new building, and scrap markets.

The authors point out: the BV model evolved from the work of two earlier researchers in maritime economics – Tinberger (with his works in 1931 and 1934) and Koopmans (with his work in 1939). They developed a macroeconomic approach by integrating the various markets into a dynamic system.

Since 1993 however, “research in maritime economics has shifted from the macro approach to micro aspects. The research has been mainly empirical in nature, and has concentrated for example, on the efficiency of individual shipping markets.”

This book then, is a return to the macroeconomic or systems approach to maritime economics, an approach that is essential to a complete understanding of the causes and effects in the shipping business. This book can help you – the executive, professional, teacher, or student – get a better handle on all the related factors. If you have a role in making decisions or taking the right actions in a shipping company, this book can be very helpful to you. Use it as a guide to manage and get better outcomes.

 

Elias Karakitsos is chairman of Global Economic Research, LLC, Director and Partner of Twintop Consultants (trading FFAs in the shipping market), and an Associate Member of the Cambridge Centre for Economic Policy at the University of Cambridge. He was at Imperial College, UK for nearly 25 years, where he held the Chair in Economics and was Head of Economics for ten years. He has acted as an advisor to the UK, US, and EU governments, and as an investment advisor to many financial institutions.

Lambros Varnavides studied Economics at University College London, UK and the London School of Economics, UK. He joined the Royal Bank of Scotland as a Shipping Analyst in 1974 and from 1998 to 2014 was the Managing Director and Global Head of Shipping at RBS. He has lectured at the Massachusetts Institute of Technology and the Cass Business School on shipping finance. He is also a Trustee Director of the Lloyds Register Foundation and a Non-executive Director of the Baltic Exchange.