Analysis of Factors Affecting the Determination of Freight Rates for Container Ships in the Global Shipping Market

Abstract

Purpose - The purpose of this study is to analyze major factors affecting the freight rates of container ships. Recently, freight rates for container ships are increasing rapidly in the global shipping market. Therefore, empirical research on how various factors of supply and demand fluctuations in container transportation affect freight rates in the mid- to long-term are needed. Design/Methodology/Approach - In this study, a research model was established based on Clarkson s maritime freight rate determination model. The four variables included in the independent variables correspond to the basic factors that determine supply and demand. Demand-related variables include container traffic volume, and supply-related variables include container ship capacity and container ship dismantling. The study began with tests of the stationarity of time series data. The unit root tests showed that all concerned variables were non-stationary. Accordingly, the result of the cointegration test showed that the tested variables are not cointegrated. Findings - Empirical evidence using first difference data shows that container ship capacity and container volume did have a significant effect on the freight rate fluctuations of container ships. On the other hand, the dismantling amount of container ships showed a different direction from the expected value, and the bunker oil price did not have much influence on the freight rate change of container ships. Research Implications - The analysis results suggest that container ship capacity and container volume, which mean the demand side and supply side, have an important effect on freight rate fluctuations in the supply and demand of the container market. In other words, it was confirmed that the most important factor in determining freight rates in the container market is a variable that directly corresponds to supply and demand. These results will help predict container ship freight rates in the shipping market, and use them to help decision makers make the right decisions.