Time Charter Rates Research Articles

Modelling forward freight rate dynamics—empirical evidence from time charter rates

The purpose of this paper is to investigate the dynamics of forward freight rate dynamics. We specify our model in a Heath–Jarrow–Morton framework. This model was originally developed for interest rate markets and, in subsequent work, the model has been applied to various commodity markets. We analyse ten years of weekly time charter (TC) rates for a Panamax 65,000 dwt bulk carrier. Our data set consists of 6-, 12- and 36-month TC rates. We use this data to construct, each day, a forward rate function using a smoothing algorithm. We use the smooth data to investigate the factors governing the dynamics of the forward freight rate curve. We find a strange volatility structure in the data. Out results show that the volatility of the forward curve is bumped, with volatility reaching a peak for freight rates with roughly one year to maturity. Also, correlations between different parts of the term structure are in general low and even negative.

Econometric Modelling of Second-hand Ship Prices

This paper provides an econometric analysis of second-hand ship prices. It starts with a presentation of previous attempts to model second-hand ship prices and their shortcomings. After that a theoretical Error Correction Model is developed making up for these shortcomings. Its results are analysed and compared to those of an atheoretical Autoregressive Model within the context of Econometric Business Cycle Research. This allows the model to describe and forecast cycles and to evaluate policies. It is demonstrated that second-hand prices of different ship sizes/segments react differently to changes in the market variables that determine them. This provides support for performing analysis at a disaggregated rather than an aggregated level. Newbuilding and timecharter rates have the greatest effect of all variables on the determination of second-hand prices, in most cases both in the short and the long run. The cost of capital is only significant for bulk carrier owners. The only exception is the Suezmax segment due to its particular characteristics. Finally, it is found that the size of the orderbook, as a percentage of the fleet, has a negative effect on the prices of second-hand vessels only in the long run and only in large and Panamax tankers.

The relationship between period and spot rates in international maritime markets

This paper evaluates empirically some very common theories of the freight rate generating process in the time charter markets. After a review of the most common assumptions made of the way time charter rates are set, the hypotheses are identified as follows: (a) the Zannetos Hypothesis, (b), the Lagged Zannetos Hypothesis, (c) the Koyck Lag Hypothesis, (d) the Rational Expectation Hypothesis, and (e) the Conventional Wisdom Hypothesis. These hypotheses are tested using statistical cointegration analysis that includes both an Augmented Dickey–Fuller (ADF), and a Johansen likelihood ratio test. Confronted with the data, hypotheses (a) and (b) are rejected outrightly. In the Koyck Lag case, the ADF statistic seem to confirm the hypothesis. A closer look at the numbers reveals that all of the impact on the time charter rates comes from the lagged dependent variable. Hence, the Koyck Lag Hypothesis is rejected. In the Rational Expectation case, the two tests conflicted. Based on the fact that the Rational Expectation Hypothesis includes the lagged dependent variable and that the Johansen test has been found to be a more robust test than the ADF test, the Rational Expectation Hypothesis is rejected. The fifth hypothesis is a reflection of the general bulk industry perception that the time charter rate is impacted by changes in the comparable spot rate and not much by the spot rate levels. In this case both the ADF and the Johansen test accepted the hypothesis for all markets. Thus, the paper concludes that the conventional market explanation of the time charter freight rate setting process is essentially correct–spot rate changes matter spot rate levels do not.

A TIME SERIES ANALYSIS OF POST-WAR FLUCTUATIONS IN SHIPPING FREIGHTS

When we discuss the business cycle in ocean shipping, the indicators we most commonly employ are the Index of Tramp Shipping Freights, and Index of Tramp Time Charter Rates or Index of Tanker Freight Rates, which are published monthly by the Chamber of Shipping of the United Kingdom or the Norwegian Shipping News. But people usually use these indices without sufficient knowledge about the nature of these economic indicators, namely as to what sort of movement these freight indices inherently trace. More concretely, no sufficient analysis has ever been made as to what extent these indices follow seasonal fluctuations, or whether there is any trend in the movement of these indices, or how are the period and amplitude of cycle, or whether it is susceptible to irregular factors etc. ; nor has hardly any study been made of the interrelation among these various freight indices, except the analysis of Lewis2), which treated the interrelation between voyage charter rates and time charter rates.