Ships have bubbles too — buying in a downturn pays off more

A new index has been developed to measure how much speculative froth has built up in the ship market — much like similar gauges used in equities and real estate. The tool assesses whether the market is overheating by comparing vessel prices against the charter rates ships can earn. The analysis found that buyers who purchased ships when prices were relatively low went on to collect higher freight and charter rates than those who bought at the peak.

According to the Korea Maritime Institute on Friday, Lee Tae-hwi, a professor at Gyeongsang National University, published a study titled "Research on Developing a Shipping Market Bubble Index" in KMI's academic journal Maritime Policy Research. Lee constructed a scale of 1 to 100 reflecting how much the price of a secondhand container ship exceeds its charter rate, allowing market participants to gauge the degree of overheating. The higher the number, the more expensive a vessel is relative to the income it can generate.

The principle mirrors a real estate metric that compares home prices against monthly rent. A secondhand vessel's price is analogous to a home's purchase price, while the charter rate is the equivalent of rental income. Just as a home becomes relatively expensive when its price surges while rent stays flat, a ship is considered overpriced when its secondhand value rises far faster than the charter rate it commands.

The study drew on 277 weeks of data from September 2018 through June 2025, using the secondhand container ship price index, the Shanghai Containerized Freight Index (SCFI) and the Howe Robinson Container Index (HRCI). The bubble index was constructed by setting the period with the lowest ratio of secondhand prices to charter rates at 1 and the highest at 100.

Comparison of 52-week average freight and charter rates after buying at bubble index lows vs. highs Provided by the Korea Maritime Institute

Category | Low (1–20) | High (71–100) | Low ÷ High 52-week avg. freight index (SCFI) | 4,158.0 | 2,412.2 | 1.72x 52-week avg. charter rate index (HRCI) | 4,759.5 | 1,839.6 | 2.59x

The results showed a clear advantage for buyers who entered the market when the bubble index was low. Ships purchased when the index stood between 1 and 20 were followed by a 52-week average SCFI of 4,158.0 — about 1.7 times the 2,412.2 recorded after purchases made when the index was between 71 and 100. The average charter rate index also diverged sharply, at 4,759.5 versus 1,839.6, meaning low-point buyers saw rates roughly 2.6 times higher. Both differences were statistically significant.

In short, buying ships when prices were relatively cheap translated into meaningfully higher freight and charter income afterward. The findings support a contrarian investment approach — securing vessels at depressed prices during a downturn rather than paying a premium after the market has already recovered.

The shipping industry has long followed a cyclical pattern: ramping up vessel investment when markets boom and pulling back during downturns. But peak periods draw heavy buying demand, pushing ship prices higher alongside freight rates. When the cycle turns, freight and charter rates fall while the cost of the vessel and its financing remain on the books.

Hanjin Shipping's aggressive vessel purchases and charter expansions during the boom years were cited in the study as a domestic example of the risks this pattern creates. By contrast, the Greek shipping industry was held up as a model of the contrarian approach — snapping up cheap vessels during downturns and growing into the world's largest shipping nation as a result. The study argued that an alert indicator signaling market overheating is needed to break the industry's habit of investing heavily in booms and retreating in busts.

Lee said the bubble index could serve as a reference tool for guarding against overinvestment during boom periods and for judging when to buy. However, he acknowledged it is not yet ready for direct application to real investment decisions. The index values shift depending on the period examined, and the analysis does not account for transaction costs, financing or operating expenses. At this stage, the index is better suited to retrospective analysis of market conditions and investment timing than to real-time decision-making.

"When vessels were purchased during bubble index low periods, freight and charter income over the following 52 weeks was statistically significantly higher than after purchases made at peak periods," Lee said. "The government and related maritime agencies could use this as a market alert indicator to curb overinvestment during boom cycles."