The Effect of Freight Rates on Fleet Productivity: An Empirical Research on Dry Bulk Market

Abstract

Fleet productivity increases in two directions. First one is achieved by increasing the speed of the vessels in the market conditions where high freight rates are observed, this increases the amount of cargo per unit capacity they carry at the unit time. The other one is related to the short run inelastic supply curve in shipping because of the time to build effect. When the demand increases occur, the amount of cargo carried per unit capacity increases since the increase in supply is limited in the short run. In this context, it is determined the relationship between freight rates and the amount of cargo carried per unit capacity in this study. The Baltic Dry Index (BDI) was selected as a measure of the freight rates, and the tonnage carried per DWT from the portion of the total cargo tonnage carried by the sea to the dry cargo fleet capacity during that year was selected as an indicator of the fleet productivity. The dataset used in the study consists of annual observations covering the period from 1985 to 2020. Correlation and regression methods were used to determine the econometric relationship between the variables. As a result of the study, a significant strong relationship was found between freight rates and productivity in the positive direction. According to the developed model, a 10% increase in the freight rate causes an increase of about 1.3% in fleet productivity.