Abstract
Changes in crude oil price affect the shipping freight market via three different channels. This study explores the dependence structure between oil prices and maritime freight rates to identify the effective channel. Therefore, it investigates the relationship between oil prices and three major maritime freight rates; the Baltic Dry Index (BDI), the Baltic Dirty Tanker Index (BDTI), and the Baltic Clean Tanker Index (BCTI). We employ the decomposition method, not studied in the existing literature, and the copula approach which can identify the time-varying effects and asymmetry in the tail dependence structure between oil prices and freight rates. The main results of this analysis are as follows: the decomposed components display different conditional dependence patterns, and asymmetry is revealed in the upper and lower tail dependence. In the long-run, we find more dependence in extreme periods like the financial crises. In short-run fluctuations, we find the dependence increases in an economic boom. The implications of the results suggest that dependence can vary over time and may change depending on extreme events, implying that the complementary strategies should be different the long-run and short-run.
Highlights
Over 80% of the global goods trade is conveyed by sea using maritime transport [1]
We use the data of three sub-freight markets of maritime transport, as published by the Baltic Exchange in London: the Baltic Dry Index (BDI), freight rates for the transport of raw materials such as iron ore, coal, and grain; the Baltic Clean Tanker Index (BCTI), freight rates for the transport of petroleum products such as gasoline and diesel; and the Baltic Dirty Tanker Index (BDTI), freight rates for oil tankers
We used the monthly data of Brent crude oil, BDI, BCTI, and BDTI, during the period January 2007–May 2020, which gives 160 observations for each variable
Summary
Over 80% of the global goods trade is conveyed by sea using maritime transport [1]. The global seaborne trade volume recorded an annual average increase of 2.95% over the last decade, from 8230 million tons in 2008 to 11,005 million tons in 2018, the global shipping capacity showed an annual average increase of 5.66% in the same period, from 1118 million DWTs in 2008 to 1938 million DWTs in 2018 [3]. This resulted in persistent global overcapacity in the shipping freight markets. Due to weak demand and overcapacity in maritime transport, low freight rates have been observed continuously in recent years, resulting in significant challenges for shipping companies in their business conditions and decision-making
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