Determinants of dry bulk shipping freight rates: Considering Chinese manufacturing industry and economic policy uncertainty

Abstract

The past decades have witnessed the rapid development of China's manufacturing industry, which has established China's status as a manufacturing and trading power. Along with the impressive transportation volume of global trade, Chinese and global shipping markets have been further developed. Both trade volumes and freight rates will be impacted by the import-export market as well as price fluctuation. The freight rates of the dry bulk shipping market are our main concern, whether they are influenced by Chinese manufacturing industry. Moreover, the relationships between the Chinese and global shipping freight rates of dry bulk in every sub-sector are discussed by employing Vector Autoregressive (VAR) model and the least absolute shrinkage and selection operation (LASSO) regression. Besides, the effects of China's economic policy uncertainty (EPU) on freight rates are explored. Our data includes the monthly data from July 2012 to August 2021, where the development of the Chinese shipping market and manufacturing industry is represented by the Tianjin Bulk Freight Index (TBI) and China's Manufacturing Purchasing Managers' Index (PMI). We find that Chinese PMI only influences freight rates of Panamax and Capesize sub-segments of the global shipping market. Surprisingly, Chinese EPU has no meaningful effect on the freight rates of the dry bulk shipping market due to the lack of shipping characteristics. Our investigation is helpful for shipowners and operators when engaging in dry bulk shipping services and investment decision-making.