Carrier markets across all modes have a tendency to go through peaks and valleys, as growth in demand leads to capacity constraints, but which then soon lead to capacity expansion by the carriers and a rebalancing of supply and demand.

If you bought carrier stocks at the bottom of each cycle, you would have done pretty well.

Ed Wolfe, the excellent transportation industry analyst at investment bank Bear Stearns, recently produced the chart below comparing the growth in total ocean freight capacity with an index of ocean shipping rates across popular international routes.

Source: Ed Wolfe/Bear Stearns

As the chart shows, there has been a steady and material increase in available ocean freight capacity since about 2003/04. While for a time the tremendous demand for ocean freight movement driven by the explosive growth in offshoring and global trade led to market tightness that caused rates to jump sharply in 2004/2005, the added capacity has ultimately had a strong effect in bringing supply and demand back into balance.

With forecasts for continued strong additions to capacity from "megaships" and other additions, importers and exporters should benefit from increased leverage for several years.

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