An integrated analysis of interrelationships within the very large gas carrier (VLGC) shipping market

Abstract

This article uses structural equation modeling to analyze the various relationships between supply (fleet size), demand (in ton-miles), freight rates, and newbuilding and secondhand vessel prices in the very large gas carrier (VLGC) market. The paper establishes the high volatility of demand for VLGCs and its significant impact on freight rates. Furthermore, freight rates are shown to be the dominant factor affecting secondhand vessel prices. The influence of freight rates on newbuilding prices is rather indirect, through secondhand prices. The research also shows that supply and demand factors have little explanatory power for vessel price movements. This paper contributes to a better understanding of the VLGC market, which is growing rapidly but still remains under-researched. Unlike other bulk shipping markets with diversified trading patterns and cargo bases, the main VLGC trading routes are niche, thus creating more price volatility. In practical terms, our results should assist shipowners and related companies to understand changes in demand and fleet size and their effects on freight rates and ship prices, which in turn, could aid in chartering and investment decisions.