Time Charter Rates Research Articles

Does fuel efficiency pay? Empirical evidence from the drybulk timecharter market revisited

The time charter market for ships represents a classical example of the principal-agent problem, where shipowners can opt to invest in energy efficient ships, yet any savings in fuel expenditures accrue to the charterers. In a competitive and efficient market, ships that have more fuel-efficient designs should, all else equal, obtain a rate premium to reflect the fuel savings. In this paper we investigate empirically the determinants of timecharter rates using a comprehensive panel data set of over 9100 timecharter fixtures for bulk carriers above 40,000 DWT between January 2001 and January 2016. We test for the presence of an energy efficiency premium using four different definitions of efficiency, while controlling for key macro, ship-specific, and contract-specific variables. Our findings suggest that the “market rate” for a standardised vessel dominates in terms of explanatory power, but that vessel age, fuel prices, place of delivery and DWT also are significant determinants across sizes. We show that the earlier findings on the energy efficiency premium in the literature are not robust when expanding the sample in time and vessel size. Using a substantially longer sample across an entire market cycle, we show that only 14–27% of fuel savings are reflected in a higher rate during normal market conditions, while the sign of the relationship flips during market “booms” such that energy inefficient vessels attract a premium. We introduce several explanations as to why there is an apparent market failure and suggest policy measures that could address this issue.

Economic Information Transmissions between Shipping Markets: New Evidence from Freight Derivatives Markets

Economic return and volatility spillovers of derivatives markets on a number of assets have been extensively examined in the general economics literature. However, there are only a limited number of studies that investigate such interactions between freight rates and the freight futures, and no studies that also consider potential linkages with freight options. This study fills this gap by investigating the economic spillovers between time-charter rates, freight futures and freight options prices in the dry-bulk sector of the international shipping industry. Empirical results indicate the existence of significant information transmission in both returns and volatilities between the three related markets, which we attribute to varying trading activity and market liquidity. The results also point out that, consistent with theory, the freight futures market informationally leads the freight rate market, though surprisingly, freight options lag behind both futures and physical freight rates, thus not fulfilling their price discovery function. The documented three-way economic interactions between the related markets can be used to enhance budget planning and risk management strategies, potentially attract more investors, and thus, improve the liquidity of the freight derivatives market.

케미컬 탱커선 운항노선별 최적선형에 관한 연구

본 연구는 아시아 케미컬 탱커 시장을 구성하는 수요 및 공급적 특성을 알아보고 케미컬 탱커선의 주요 비용을 파악하여 탱커시장의 주요 노선별로 최적선형을 제시하는 것이다. 따라서 본 연구는 선박 운항 상 비용분석에 관한 선행연구사례를 파악하고 케미컬 탱커 관련 연구를 통해 케미컬 탱커선에 적용 가능한 비용모델을 파악하였다. 또한 각 비용요소에 해당하는 데이터를 수치해석(Numerical Analysis)하고 연구결과의 민감도를 최소화하기 위해 시나리오 분석을 시행하였다. 그 결과 다음과 같이 다섯 가지의 시사점을 도출할 수 있다. 첫째, 연구대상 선형에서 평균적인 마켓상황을 가정했을 때, '극동-중동 노선'에서는 12,000DWT급 선형, '극동-동남아시아 노선'에서는 9,000DWT급 선형, 극동지역 내 에서는 3,000DWT급이 비용측면에서 경쟁력을 보일 수 있다. 둘째, 케미컬 탱커의 선박 사이즈가 커질수록, 연료의 가격이 상승함에 따른 경쟁우위가 높아지고 작은 사이즈의 경우 연료가격이 하락할 경우 경쟁우위가 높아지는 것으로 나타났다. 셋째, 케미컬 탱커의 용선료 변동은 호황기와 불황기의 표준편차가 20%미만으로 시황의 영향을 덜 받는 것으로 나타났으며, 비슷한 비율로 상승 시 사이즈별 경쟁력에는 큰 차이가 없는 것으로 나타났다. 넷째, 케미컬 탱커의 Parcelling의 규모가 커질수록 큰 사이즈의 케미컬 탱커가 경쟁력을 가지며 반대의 경우 작은 탱커의 경쟁력이 상승하는 것으로 나타났다. 마지막으로, 케미컬 탱커의 재항시간은 선박의 비용측면에 큰 영향을 미치는데 재항시간이 감소할 경우 큰 사이즈의 선박 경쟁력이 더욱 상승하여 보다 짧은 루트에 투입하여도 경쟁력이 있는 것으로 나타났다. This study objects to find characteristics in chemical tanker markets and to determine optimal chemical tanker size using a total shipping cost in main trading route of asia chemical tankers .Precedent studies of determination of the optimal ship size and case studies about chemical tankers was carried out and tried to introduce a cost model which is applicable to chemical tanker. This study is dependant on numerical analysis and involves scenario analysis to minimize sensitivity of results. This analysis shows as follows. First, 12,000DWT tanker is an optimal size on the 'Far East-Middle East' services, 9,000DWT tanker is a most competitive on the 'Far East-South East Asia' services and 3,000DWT tanker is a most economic size on the 'Inner Far East' services at average market situation. Second, the bigger size of chemical tanker, the more competitive advantage the tanker will obtain when bunker fuel prices rise. Small size ship gets more competitive during bunker prices down. Third, market fluctuation of time charter rate for chemical tanker is less than 20% against its average time charter hire which means less volatile. And tanker's competitiveness per each size is remained mostly same when time charterer rates rise at same proportion. Fourth, bigger size chemical tankers have cost advantages when tanker's quantity of each part cargo increase. And small-sized tanks are more competitive when part cargo scales decrease. For the last, ship's port stay strongly influences on the determination of the optical tanker size. When vessel has shorter port stay, bigger-sized tanker will be more competitive and even can be competitive if applies in short voyage as well.

Analysis of structural changes in container shipping

A number of studies have investigated the dynamics of shipping markets because of their volatility, unpredictability and risk. However, most of them have focused on bulk and tanker markets because the container market is relatively new and long-run correlation is not identified using general cointegration methods. This article tries to analyze the dynamic interrelationship among newbuilding prices, time charter rates and second-hand ship prices in the container market. Our methodology consists of the Johansen’s Vector Autocorrelation Model to test the existence of long-run relationships and it purports to show that the failure of the cointegration test is caused by the existence of structural changes in the relationship among these variables. After recognizing the newbuilding price as dependent variable by the use of the causality test, we identify the number of structural breaks and the specific coefficients in each regime for the overall and each sub-market, using Bai–Perron’s multiple structural changes test. The result confirms the existence of structural changes in the correlation among ship prices and freight rates. It also suggests that in a decreasing market, the newbuilding price is more active than the time charter rate and the second-hand price. In an increasing market instead, the time charter rate is more active; and in a matured stable situation, the second-hand market is more flourishing.

A study of the relationships between the time charter and spot freight rates

A time charter contract is a shipping contract that allows for freight rate risk avoidance and hedging. Defining the relationship between time charter and spot freight rates will illuminate the fluctuation mechanism of the spot freight market. In this article, three types of dry bulk ships – Capsize, Panamax and Supramax – are chosen to investigate the relationship between time charter and spot freight rates and to analyse the price discovery function of time charter contracts. A vector error correction model is developed, and an impulse response function is used to analyse the influence of time charter rates on spot freight rates. Empirical studies indicate that there are two-way lead–lag relationships between the time charter and spot freight rates and that a time charter contract has a price discovery function. Smaller ship sizes and longer durations lead to a stronger price discovery function.

Is It Rational to Order Ships When Freight Markets Are in Depression?

“Very high spot rates induce excessive orders” this statement is tested. Time charter rates found not only to influence orders more than spot rates, but so does the price of shipbuilding. It is also shown that the surplus of supply over demand is a more accurate measure for shipowners in placing orders. This was first proposed by Koopmans (1939), but never tested statistically till this paper. Shipowners only remember well a depression that occurred in their life-time. They order ships during a depression to secure low prices, embody new technology (e.g. energy saving - ECO ships) or invest in promising ships (e.g. LNG, offshore units and large containerships). Some orders are placed at low freight rates. This phenomenon was first described by Zannetos (1966) (the “Zannetos’ paradox”). This paradox, however, contradicts maritime economists’ assumption of perfect foresight and a normal distribution for market disturbances. We take into account that a depression reduces capital cost (due to the lower new-building prices) and at the same time obliges shipowners to reduce operating costs. The previous boom (2003-2008) greatly helped subsequent orders in 2009-2014, as owners have built up sufficient liquidity. A depression is a period when, historically, shipowners have committed serious errors. It is rational to order ships when freight rates are high, but is it not suicidal to order them when spot, or time charter, rates, produce great losses? This is cleared out.

Energy efficiency and time charter rates: Energy efficiency savings recovered by ship owners in the Panamax market

This paper presents the first analysis on how financial savings arising from energy efficient ships are allocated between owners and those hiring the ships. This as an important undertaking as allocation of financial savings is expected to have an impact on the incentives faced by ship owners to invest in more energy efficient vessels. We focus on the dry bulk Panamax segment as it contributes to around 50Mt (5%) of total CO2 emissions from shipping in 2007 and therefore its importance in terms of environmental impact should not be neglected. The time charter market represents a classical example of the principal–agent problem similar to the tenant–landlord problem in the buildings sector. We discovered that on average only 40% of the financial savings delivered by energy efficiency accrue to ship owner for the period 2008–2012. The finding that only part of the savings are recouped by shipowners affecting their incentives towards energy efficiency could consequently have implications on the type of emission reduction policies opted at both, global and regional levels.

Analyzing ship investment behaviour in liner shipping

This study analyzes capacity expansion and ship choice decisions. Theoretically, we derive the probability of capacity expansion as a function of market and company attributes and characterize the impacts of these factors on expansion decisions. Empirically, we analyze ship investment and ship choice behaviour using binary choice and nested logit models based on ship investment data from major liner shipping companies over the period 1999 to 2009. Most expansion decisions are found to be market-driven, and large companies expand to maintain their market shares. In terms of ship selection, statistical results support the assumption that shipping companies decide on a new order or second-hand purchase before considering the ship size. Also, new orders are preferable to second-hand purchases. For new orders, the preference increases with ship size, and decreases with shipbuilding length and demand growth rate. For all ship types, the preference increases with a high and stable time-charter rate. For second-hand ships, handysize is the most preferable size. The substitution of new orders and second-hand purchases is possible, but not symmetrical.

Analysis of Term Structure in Dry Bulk Freight Market

Based on the monthly data set from January 1992 to May 2012, this paper applies a VAR model and two time-varying coefficient models to analyze term structure in dry bulk freight market. The resulting three main empirical findings are as follows: 1) The response of long-term rate to short- term structural shock is relatively small and not statistically significant but the response of short-term rate to long-term structural shock is large and statistically significant. 2) Compared with the presumption that in backwardation the short-term rate is inclined to decrease but the long-term rate to increase, but in contango the opposite pressure would function, there is lack of evidence for the stable adjustment speed in both equations for the short- and long-term freight rate. 3) When the market is relatively above the normal level (more backwardation), the effect of the implied forward time charter (IFTC) rate on the actual TC rate becomes larger. When predicting the future TC rate based on IFTC rate, it recommends giving more weight to the IFTC rate in backwardation than in contango.

The time dimension and value of flexibility in resource allocation: The case of the maritime industry

The study empirically analyses the time-varying properties of the spread between voyage and time-charter rates and presents evidence that these properties are directly related to the business cycle (market demand) of the maritime industry, to the expectations for the future market demand and to market volatility. Using a real options methodology, it is demonstrated that the time-varying properties of the spread is the outcome of the strategic decision to time-commit company resources in the industry. During a market upturn (downturn) managers choose to commit company resources for a short period (long period), and thus, maintain flexibility (commitment) in better exploiting the upcoming business opportunities (protecting company resources from lack of business opportunities). Overall, the fluctuations of the time-varying spread between voyage and time-charter rates offer managerial insights in resource allocation that can better shape up chartering, budgeting and financial management decisions on the time commitment of resources in the maritime industry.

Dry Bulk Time Charter Rates Joint Return Distribution Modeling: Copula-Approach

The paper is the first to the knowledge of the authors to apply copula models to reconstructing joint distribution of time charter rates for dry bulk ship. Based on the Clarksons dataset for the last 20 years it is claimed that Gumbel copula is enough to perform the mentioned objective. To arrive at the conclusion the homogenous dataset in terms of copula structural shifts’ absence is used; a system of criteria for copula selection based on goodness -of-forecast criteria is implemented. The evidence suggests dry bulk time charter rates weekly returns exhibit symmetric distribution.As an auxiliary output stands for the result of copula fit accounting for time dynamics and not. For the purpose of conservative analysis (i.e. risk-management) approach disregarding time-dynamics should be preferred as yielding the least number of value-at-risk breaches. From the risk budgeting perspective non-conservative approach (accounting for time dynamics) might be preferred as reflecting the rapidly changing value-at-risk.

Forecasting spot rates at main routes in the dry bulk market

The dry bulk shipping market is a major component of the international shipping market and it is characterized by high risk and volatility, in view of the uncertainty caused by factors such as the global economy, the volume and pattern of seaborne trade, and government policies. In such markets, to model price behavior (of spot- or time charter rates) has always been a topic of great interest among researchers. This article makes an attempt to forecast spot rates at main routes for three types of dry bulk vessels and to find superior forecasting models that can provide better forecasts. In this article, 1-month change in the Baltic Index, representing the market sentiment, is firstly invented and incorporated into the forecasting models, and this indicator is found to be very helpful in improving prediction performance. Furthermore, some significant exogenous variables are also employed to improve forecasting performance. The results of the cointegration test reveal that there are no long-run relationships of spot prices between trading routes for all three ship sizes. Hence, except a vector error correction model, time series models, such as the ARIMA, ARIMAX, VAR and VARX, are employed in this article to make the prediction. All spot prices cover the period from January 1990 to December 2010, which is split into an estimation period and an out-of-sample forecasting period. In order to test whether the market since 2003 is significantly different from the market before, the in-sample estimation is made over two sample periods. Various models are estimated firstly over the whole period from January 1990 to June 2009, and then estimated again over the second period from January 2003 to June 2009 at all routes for three ship sizes. The period from July 2009 to December 2010 is then used to evaluate independent out-of-sample forecasts. The forecasting performance of various forecasting models is evaluated and the comparison of the forecasting capabilities between various models provides useful information in the selection of superior forecasting models, which can yield better forecasting results.

A fuzzy integrated logical forecasting (FILF) model of time charter rates in dry bulk shipping: A vector autoregressive design of fuzzy time series with fuzzy c-means clustering

Fuzzy time series (FTS) is a method of making educated guesses by using fuzzy intervals, which correspond to time series clusters. It is also useful for data noise reduction and is based on rule-based forecasting. The aim of this article is to develop a vector autoregressive fuzzy integrated logical forecasting (VAR-FILF) model for time charter rates of Panamax and Handymax bulk carriers. Results are tested by using Chen's FTS method (cFTS), bivariate cFTS (Bi-cFTS) method and conventional time series methods, and the accuracy of the VAR-FILF method is found to be higher than these methods. In addition, the length of intervals affects the forecasting result and the accuracy of forecasting. Therefore, this study proposes the fuzzy C-means clustering method for the structuring of the fuzzy length of intervals of the FTS forecasting process.

A real options approach to ship investment appraisal

Initially, this paper presents a methodology for analysis of investment in a tanker ship, based on Monte Carlo simulation of auto-correlated series of time-charter rates and prices of new building and second hand ships. Subsequently, a real options analysis is introduced, considering the possibility of project abandonment. The method is employed for evaluation of the investment in a suezmax tanker. The results indicate that the investment analysis outcome is significantly sensitive to the consideration of the managerial flexibility to project abandonment. Finally, the paper discusses the effect of the decision maker’s risk attitude on the abandonment option value. Key words: Shipping investment appraisal, real options, risk attitude.

Price formation of dry bulk carriers in the Chinese shipbuilding industry

In this paper, we present, for the first time, the price formation of Chinese dry bulk carriers based on the historical shipbuilding contract prices. Price determinants include generic market factors as well as Chinese elements. Principal component regression analysis is employed as the solution for the multicollinearity problem among explanatory variables. The result indicates that the time charter rate has the most significant positive impact on shipbuilding price; increases in three other factors, namely the cost of shipbuilding, the price-cost margin and the shipbuilding capacity utilisation, have positive influences in the descending order. Unlike the traditional perception of newbuilding price that shipbuilding cost has the most significant effect, we assert that the most important role the time charter rate plays is attributed mainly to the ‘China Factor’ in the bulk carrier sector. In addition, simulations are performed to investigate what would happen to the Chinese dry bulk carrier prices under changes in the time charter rate and shipbuilding cost. The findings are useful for Chinese shipyards, shipowners and emerging shipbuilders.

A gam assessment of quality premia in the dry bulk time–charter market

This paper revisits the hypothesis of a quality segmented charter market using dry bulk-Panamax time–charter rates from the shipping boom period of 2003–2007. Through generalized additive models (GAMs) the authors assess whether increasing awareness and regulation over time has brought about a change in charterers’ perceptions. The results suggest that freight differentiation has become visible in booming markets with high freight rates. Controlling for contract specific effects such as place of delivery, charter length and number of days forward to delivery, as well as for vessel size and consumption, the paper quantifies quality related differences in physical dry bulk charter rates.

A Mixed-Regime Model for Dry Bulk Freight Market

This paper constructs a mixed-regime model for dry bulk freight market. Then it performs maximum likelihood estimation and provides the results. Inter alia, the hypothesis that there is bimodality in the supply curve of shipping freight markets is strongly supported by analyzing the effect of the term structure of time-charter rates on the time-varying volatility.Furthermore, the adjustment speed of 1-year time-charter rate in lowvolatility regime is larger than in high-volatility regime, which means the market players consider the backwardation shock in low uncertainty as more important than in high uncertainty. Especially the Cape-size markets respond positively to the back-wardation shock in low-volatility regime but respond negatively in high-volatility regime. Finally, the estimated time-varying variance using real-time data has a highly statistically significant relation with the next squared error terms.

Chaos theory: forecasting the freight rate of an oil tanker

The main aim of this paper is to predict the Aframax tanker charter rate index by using methods from non-linear analysis especially from chaos theory as is the method of false nearest neighbours (FNN). This is the result of the new emerging field of econo-physics which mainly consists of autonomous physico-mathematical models that have been already applied to the financial markets and now in particular aspects of the complex non-linear dynamics of several maritime indices such as the time charter rate of an Aframax tanker.

A co-integration approach to forecasting container carriers’ time charter rates

A vector autoregressive model was developed for a sample of container carrier time charter rates. Although the series of time charter rates are themselves found non-stationary, thus precluding the use of many modeling methodologies, evidence provided by co-integration tests points to the existence of stable long-term relationships between the series. An assessment of the forecasts derived from the model suggests that the specification of these long-term relationships does not improve the accuracy of long-term forecasts. These results are interpreted as a corroboration of the efficient market hypothesis.

Niver Lines: A System-Dynamics Approach to Tanker Freight Modeling

Managers can improve their investment decisions in a cyclical market, such as the tanker market, by using system-dynamics models. We developed and implemented a system-dynamics model for the tanker market for Niver Lines. We combine entry, exit, and lay-up decisions, and determine the flow of transportation supply. Then, we compare supply and demand and calibrate the system. We derived time-charter rates from the interaction of supply and demand using historical data from 1980 through 2002. Our results reveal the key factors that affect tanker rates and unforeseen dynamics. The model is a powerful tool for modeling the impact of changes in various factors on time-charter rates.