An Early-Warning System for Shipping Market Crisis Using Climate Index

The shipping market is always in volatility according to complex impact factors. This paper develops a new operational early warning system (EWS) model based on the economy cycle theory for predicting shipping market crises. To achieve this goal this paper analyses and extends the early warning system by constructing the "climate index". Taking industry capacity and profit level into account, several indicators are selected for the synthesis of climate index. These indicators are divided into three categories of the leading, coincident and lagging with time difference correlation analysis and cluster analysis approach. Advantageously accessible to extensive resources, multiple datasets are available for the selected indicators. In terms of the economic cycle theory, diffusion and composite indices of global shipping prosperity are presented by using the factor analysis, predicts composite indices and market situation with the climate index curve and signals. As an empirical example, a climate index for Shanghai container shipping market is developed in order to demonstrate its potential usefulness as an early warning system. It turns out this model can provide a powerful tool for the operators and investors to understand the market trend and avoid the price risk. Additionally, early warning software is developed to put this idea into practice.