The dynamics between freight volatility and fleet size growth in dry bulk shipping markets

This paper studies the relationship between the time-varying volatility of dry bulk freight rates and the change of the supply of fleet trading in dry bulk markets. An abundance of research has been done to understand the time-varying characteristics of freight rate volatility, yet few have discussed the determinants of freight volatility. We therefore examine freight volatility against the changes in fleet size and other shipping market variables over January 1973–October 2010. The study employs a two-step model specification. The first step is the measurement of freight rate volatility through an AR-GARCH model; the second step is the analysis of the relationship between freight rate volatility and fleet size growth through a GMM regression. We confirm similar findings in the literature that freight rate volatility is time varying. Furthermore, the results reveal that the change in fleet size positively affects freight rate volatility, while the spot rate volatility of Capesize dry bulk exhibits a stronger reaction to the change in fleet size. The results of this study contribute in a general sense to understanding the systematic risk of shipping markets.     

Vessel and voyage determinants of tanker freight rates and contract times

The behavior of shipping freight (charter) rates and the timing of shipping contracts affect the transportation costs of charterers and the operating cash flows of shipowners. Although the literature has established macroeconomic determinants of shipping freight rates, there has been no systematic investigation of microeconomic determinants of freight rates and the delivery time of chartered ships (the laycan period) in the tanker market. Therefore, the aim of this paper is to investigate the importance of vessel and contract specific factors in the determination of tanker freight rates and laycan periods in shipping contracts. Individual tanker shipping contracts from January 2006 to March 2009 are used to estimate freight rates and laycan periods using a system of simultaneous equations. The estimation results suggest that the duration of the laycan period is an important determinant of the shipping freight rate and vice versa. Other determinants of freight rates include the vessel's hull type, fixture deadweight utilization ratio, vessel age, and voyage routes. Determinants of the laycan period include the former determinants as well as the Baltic Dirty Tanker Index and its volatility.     

Freight options: Price modelling and empirical analysis

This paper discusses an extension of the traditional lognormal representation for the risk neutral spot freight rate dynamics to a diffusion model overlaid with jumps of random magnitude and arrival. Then, we develop a valuation framework for options on the average spot freight rate, which are commonly traded in the freight derivatives market. By exploiting the computational efficiency of the proposed pricing scheme, we calibrate the jump diffusion model using market quotes of options on the trip-charter route average Baltic Capesize, Panamax and Supramax Indices. We show that the jump-extended setting yields important model improvements over the basic lognormal setting.     

Default risk drivers in shipping bank loans

This paper proposes a credit scoring model for the empirical assessment of default risk drivers of shipping bank loans. A unique dataset, consisting of the credit portfolio of a ship-lending bank is used to estimate a logit model with two-way clustered adjusted standard errors, ensuring robust inferences. Industry specific variables, captured through current and expected conditions in the extremely volatile global shipping freight markets, the risk appetite of borrowers–the shipowners – expressed through the chartering policy they follow – and a pricing variable, are shown for the first time to be the important factors explaining default probabilities of bank loans.     

An agent based model concept for assessing modal share in inter-regional freight transport markets

This paper introduces an Agent based modelling approach to model inter-urban freight transport between two or more trading regions. The use of the model is to ascertain the modal share of competing transport modes (road and intermodal) while taking complex transport service supply–demand dynamics into account. It is structured by modules describing company generation, supplier choice, modal competition and International road freight transport market dynamics. The behaviour of individual actors is simulated using normative agent behaviour and market knowledge. Using the micro-simulation approach, shippers and carriers (primarily road hauliers and a maritime based intermodal operator) interact through simulated contracts resulting in the generation of tours. The service performance of the tours is fed back into the model for decision making during contract deliberations. Preliminary application of model to Mediterranean case study show that market share gains of around 25–30% are obtained with policy interventions of financial subsidies to intermodal services and more frequent shipping services in the intermodal transport respectively.     

Seasonality patterns in dry bulk shipping spot and time charter freight rates

This paper investigates the nature of seasonality (deterministic and/or stochastic) in dry bulk freight rates, and measures and compares it across freight rates of different vessel sizes (Capesize, Panamax and Handysize), contract duration (spot, 1-year and 3-year time charters) and market conditions (peaks and troughs). Although, there is no evidence of stochastic seasonality, deterministic seasonality in freight rates is found to be varying from −18.2% to 15.3% in individual months within a year. Spot rates for larger vessels exhibit higher seasonal fluctuations compared to smaller vessels, although differences in seasonal fluctuations between sectors are eliminated as the contract duration increases. Also, for each vessel size, the seasonality declines as the contract duration rises. Asymmetries in seasonal fluctuations in freight rates over different market conditions are attributed to the high and low elasticities of supply expected under the respective market conditions. The results have implications for tactical shipping operations such as timing of dry-docking, chartering strategies and switching between freight markets.     

Vertical integration and exclusivities in maritime freight transport

A key recent theme in maritime freight transport is the involvement of shipping lines in terminal management. Such investments are costly but allow liners to provide better service. Most of these new terminals are dedicated terminals but some are non-exclusive and let rivals access them for a fee. In this paper, we show that a shipping line that builds its own terminal finds it strategically profitable (i) to continue routing part of its cargo through the open port facilities, and (ii) to keep its terminal non-exclusive. In this way, the liner investor pushes part of the rival’s freight from the open to the new terminal. Besides, under non-exclusivities, the shipping lines offer a wider variety of services, total freight increases and the resulting equilibrium fares are higher than with a dedicated terminal.     

Liquidity effects and FFA returns in the international shipping derivatives market

The study examines the impact of liquidity risk on freight derivatives returns. The Amihud liquidity ratio and bid–ask spreads are utilized to assess the existence of liquidity risk in the freight derivatives market. Other macroeconomic variables are used to control for market risk. Results indicate that liquidity risk is priced and both liquidity measures have a significant role in determining freight derivatives returns. Consistent with expectations, both liquidity measures are found to have positive and significant effects on the returns of freight derivatives. The results have important implications for modeling freight derivatives, and consequently, for trading and risk management purposes.     

The determinants of credit spreads changes in global shipping bonds

This paper investigates whether bond, issuer, industry and macro-specific variables account for the observed variation of credit spreads’ changes of global shipping bond issues before and after the onset of the subprime financial crisis. Results show that conclusions as to the significant variables of spreads depend significantly on whether two-way cluster-adjusted standard errors are utilized, thus rendering results in the extant literature ambigious. The main determinants of global cargo-carrying companies’ shipping bond spreads are found in this paper to be: the liquidity of the bond issue, the stock market’s volatility, the bond market’s cyclicality, freight earnings and the credit rating of the bond issue.     

Competition and horizontal integration in maritime freight transport

This paper models competition for freight transport between the road and maritime sectors. Operators offer differentiated services and there are economies of scale in the oligopolistic shipping line sector. Two types of integration between shipping lines are considered: in one of them the liners production processes remain separate (like in an alliance); in another economies of scale are further exploited. Typically maritime freight post-merger goes down. However, it may increase if the merger exploits further economies of scale, they are important and transport services are sufficiently differentiated. An empirical application to the routes Valencia–Antwerp and Valencia–Genoa is undertaken to confirm the predictions of the model. It is shown that, for both types of merger, user surplus increases when transport services are weakly differentiated and economies of scale are sufficiently small. These conditions also guarantee that a merger is socially beneficial.     

An stated preference analysis of Spanish freight forwarders modal choice on the south-west Europe Motorway of the Sea

This paper aims to contribute towards the design of effective freight transport policy by means of empirical analysis. In order to do so, a stated preference survey is undertaken to model the modal choice between door-to-door road transport and short sea shipping in the Motorway of the Sea of south-west Europe. The proposed analysis will provide policymakers with the necessary tool to identify the critical areas that should be addressed by future policy action in order to boost short sea shipping on Spain's Mediterranean coast. By applying the proposed method, we will be able to obtain estimates of the subjective values of transport attributes – value of time, value of reliability and value of frequency – in freight transport, values for which barely any empirical evidence on a national scale exists. Quantifying such values is a key part of the cost benefit analyses performed when evaluating transport projects.     

Cooperation through capacity sharing between competing forwarders

In this paper, we consider a shipping system consisting of one carrier and two shipping forwarders who compete on price for businesses from potential shippers. The carrier may quote different prices or a single price to the two shipping forwarders who will then order shipping capacity from the carrier and set the selling prices to the shippers before market uncertainties are revealed. Inspired by cooperation between competing parties in many industries including the maritime shipping industry, we propose a new model under which the shipping forwarders are allowed an opportunity to purchase shipping capacity from each other after they order capacity from the carrier but before they set the selling prices and satisfy demand, referred to as the capacity reservation model. We show analytically that capacity reservation between competing forwarders benefits both the carrier and the forwarders, leading to a win–win situation under various market conditions. Furthermore, capacity reservation can offset the negative effect of a carrier’s pricing power which enables the carrier to charge discriminatory shipping prices to squeeze more profits out of the forwarders.     

Constant vs. time-varying hedge ratios and hedging efficiency in the BIFFEX market

This paper estimates time-varying and constant hedge ratios, and investigates their performance in reducing freight rate risk in routes 1 and 1A of the Baltic Freight Index. Time-varying hedge ratios are generated by a bivariate error correction model with a GARCH error structure. We also introduce an augmented GARCH (GARCH-X) model where the error correction term enters in the specification of the conditional covariance matrix. This specification links the concept of disequilibrium (as proxied by the magnitude of the error correction term) with that of uncertainty (as reflected in the time varying second moments of spot and futures prices). In- and out-of-sample tests reveal that the GARCH-X specification provides greater risk reduction than a simple GARCH and a constant hedge ratio. However, it fails to eliminate the riskiness of the spot position to the extent evidenced in other markets in the literature. This is thought to be the result of the heterogeneous composition of the underlying index. It seems that restructuring the composition of the Baltic Freight Index (BFI) so as to reflect homogeneous shipping routes may increase the hedging effectiveness of the futures contract. This by itself indicates that the imminent introduction of the Baltic Panamax Index (BPI) as the underlying asset of the Baltic International Financial Futures Exchange (BIFFEX) contract is likely to have a beneficial impact on the market.     

Dynamic volatility spillovers across shipping freight markets

This paper examines the existence of dynamic volatility spillovers within and between the dry-bulk and tanker freight markets by employing the multivariate DCC-GARCH model and the volatility spillover index developed by Diebold and Yilmaz (2012, 2009). This methodology is invariant to ordering the variables when estimating a VAR model and allows for the disaggregation of volatility spillovers in total, directional, net and net pairwise. Results reveal the existence of large time-varying volatility spillovers across shipping freight markets, which are more intense during and after the global financial crisis.     

Simultaneous optimization of schedule coordination and cargo allocation for liner container shipping networks

A liner container shipping carrier usually collects immediately-delivered goods that are produced by manufacturers in world factories, and transports the products to worldwide market destination by offering weekly shipping service. In practice, the carrier has to consider extra demurrage cost of containerized cargos incurred from waiting for weekly shipping service at ports. In this paper, we develop a mathematic programming model to maximize the carrier’s profitability by simultaneously optimizing the ship route scheduling and interrelated cargo allocation scheme. The nonlinear optimization model is transformed into an equivalent mixed-integer linear program, and its applicability is demonstrated by a case study.     

Determinants of port centrality in maritime container transportation

This paper adapts Freeman’s measures of degree, closeness and betweenness centrality and applies them to assessing: port centrality in relation to direct connectivity; accessibility to all ports in the network (direct and indirect routes) and; as an intermediary between other ports. An additional parameter added to the formulae ensures that the relative importance of available shipping capacity and foreland market coverage are also accounted for. Validation of this adapted measure is provided by the results obtained from an empirical application. These reveal that foreland market coverage exerts a particularly strong influence on a port’s demand and closeness centrality.     

中国铁路货运市场占有率发展趋势分析

分析中国铁路货运的发展形势,建立关于铁路、公路货运量在全社会货运量中所占市场份额的差分方程组模型,运算后得出铁路货运在整个货运市场中的占有率趋向。通过利用历史统计数据计算,得到铁路货运市场占有率的一个数值解。     

Intermodal containerized shipping in foreign trade and regional accessibility advantages

Intermodalism has become one of the most significant transformations of freight transportation in the United States over the past two decades. The coupling of shipping modes has enabled shippers to more fully realize the respective time and costs advantages of respective modes. The opportunity to take advantage of intermodalism when shipping manufactured goods overseas may provide an essential competitive edge to a company or to an entire region engaged in world commerce. The change in the freight accessibility map of the United States to foreign markets that can be ascribed to intermodal infrastructures and operations has so far not been studied. With the help of a geographic information system, this paper analyzes this transformation in the United States by mapping integral place accessibility measures of five-digit zip code areas with respect to gateways for export of manufactured goods, especially containerized freight. The performance of the intermodal freight network is evaluated by comparing accessibility measures based on the highway network and on the intermodal network, respectively, for all North American container ports, as well as for subgroups of container ports on the Eastern Seaboard, the Western Seaboard, and the Gulf Coast of North America. The paper discusses regional winners and losers in the new national freight transportation system.     

云南铁路货运量增长问题研究

在分析国内外铁路货运需求增长模型的基础上,提出铁路货运需求增长过程的4阶段划分理论,结合云南铁路发展滞后的现状,建立了消除铁路货运能力限制的货运量增长模型。通过对云南铁路货运量和货运需求量的计算,应用MATLAB仿真技术验证了模型的正确性,并对云南铁路货运量和货运需求量进行了预测。     

The influence of charterers and owners on bulk shipping freight rates

We propose a model for freight rate formation in individual contracts that incorporates charterer and owner heterogeneity and owner–charterer match effects. We estimate fixed effect regressions and implement a variance decomposition for 2863 VLCC tanker and 1789 Capesize fixtures between 2011 and 2014. Although market conditions and routes remain the most influential covariates, the characteristics of charterers, owners and of their matches are also significant microeconomic determinants of the freight rate level. The contribution of the charterer fixed effect is large in the VLCC market, while the charterer and match effects are large contributors to the Capesize spot freight rate.