Ship-type preferences of newbuildings in the dry bulk market

Abstract

New ship investment, especially the ship-type choice decision is an important strategy for companies in the highly competitive dry bulk market. This study tries to investigate the impacts of various factors on the ship-type preferences for different shipping companies. Through literature review and discussion, it proposes three hypotheses to investigate the effects of market and operational, company strategy and industrial clustering factors on the ship-type preferences for dry bulk ships. Using observed companies' investment data 2000 to 2019, the multinomial logit model (MNL) is deployed to analyze the incentives of ship-type selection. The empirical results show that the above three factors all impact the companies ship-type preferences. The industrial clustering factor leads to the preferences of medium-size vessels built in China and Japan and larger ships in European and America. With respect to the effect of company strategies, larger companies react more intensely to the changes of their market shares as they are more capable in investing in larger vessels in responding to its market share changes. The market and operational factors also incur different effects on the ship-type preferences. It is interesting that demand and freight rates positively impact the companies' preferences of the Panamax ship type as it can incorporate the economies of scale and accessibility to most of the ports in the world. The detailed insights provided by this study into the choice behavior of companies in different market conditions and competitive environments can help dry bulk companies to make decisions suitable for maintaining or expanding their market shares as needed, so as to formulate a more scientific, reasonable and sustainable investment and development plan.