Vessel Prices Research Articles

Pricing the second-hand dry bulk vessel through stacking ensemble with add-on plain feedforward neural networks

PurposeThe accurate valuation of second-hand vessels has become a prominent subject of interest among investors, necessitating regular impairment tests. Previous literature has predominantly concentrated on inferring a vessel's price through parameter estimation but has overlooked the prediction accuracy. With the increasing adoption of machine learning for pricing physical assets, this paper aims to quantify potential factors in a non-parametric manner. Furthermore, it seeks to evaluate whether the devised method can serve as an efficient means of valuation.Design/methodology/approachThis paper proposes a stacking ensemble approach with add-on feedforward neural networks, taking four tree-driven models as base learners. The proposed method is applied to a training dataset collected from public sources. Then, the performance is assessed on the test dataset and compared with a benchmark model, commonly used in previous studies.FindingsThe results on the test dataset indicate that the designed method not only outperforms base learners under statistical metrics but also surpasses the benchmark GAM in terms of accuracy. Notably, 73% of the testing points fall within the less-than-10% error range. The designed method can leverage the predictive power of base learners by incrementally adding a small amount of target value through residuals and harnessing feature engineering capability from neural networks.Originality/valueThis paper marks the pioneering use of the stacking ensemble in vessel pricing within the literature. The impressive performance positions it as an efficient desktop valuation tool for market users.

An empirical analysis of structural breaks in world dry bulk shipping market

Dry bulk shipping is an important element of international trade. However, as dry bulk shipping market is always influenced by unanticipated economic, financial or political events, structural breaks exist in vessel price volatility, while the price volatility characteristics under structural breaks have not been well identified. This paper aims to investigate the vessel price volatility under structural breaks caused by external events. The modified ICSS algorithm is applied to detect the structural break points and GARCH model incorporating structural breaks is used to examine the volatility of newbuilding and second-hand vessel prices of four dry bulk vessel types using monthly data from January 2002 to November 2012. Results show that the price volatility's persistence effect and clustering effect decrease when structural breaks in variance are accounted. The findings may contribute to the literature in vessel price volatility modelling under structural breaks and may be helpful for practitioners.

Investment and trading strategies in the maritime sector: an application to the secondhand containership market

As shipping market players operate in a competitive and volatile business environment, their highly capital-intensive investment decisions to target value-generating projects are exposed to critical risks. Therefore, the paper investigates the efficiency of investment strategies based on the combination of technical trading rules and fundamental analysis in selling and purchasing ships in the container shipping market. Using historical datasets of second-hand vessel prices and time-charter rates from October 1996 to June 2021, long-run cointegrating implications and short-run causality spillover effects are examined for three groups of containerships, distinguished by their transportation capacity, viz. 725 TEUs, 1700 TEUs, and 3500 TEUs. In addition, the moving average trading rules are used to indicate the timing of investment or divestment decisions through the analysis period. The results for vessel prices and earnings for 3500 TEU containerships appeared to be more volatile compared to smaller ships (725 TEUs and 1700 TEUs), while time-charter earnings are seen to exert an impact on second-hand prices across all vessel types. Moreover, due to higher volatility, the trading strategies based on price-earning ratios significantly outperform the buy-and-hold strategies for the 3500 TEU and the 1700 TEU containerships. On the contrary, the decision to buy-and-hold smaller container ships (725 TEU) yields higher profits than the active sale and purchase strategy. The insights provided in this paper can be used by multiple stakeholders, such as liner operators, investors, lessors, and researchers.

Dynamic volatility spillovers and investor sentiment components across freight-shipping markets

This paper investigates whether dynamic volatility spillovers across freight-shipping markets can be explained by a comprehensive set of indicators capturing shipping investors’ sentiment. Our results reveal that an increase in the ratio of second-hand over newbuilding vessel price triggers an increase of the transmission of economic information within both the dry-bulk and tanker segments, while an increase in the ratio of price-to-earnings, as well as in the ratio of vessels sold over vessels of the global fleet also trigger an increase of the economic information transmission within each of the dry-bulk and tanker vessels, respectively. These results have important implications for shipping-market players, as they reveal novel mechanisms of the transmission of economic information within the segments and across the sub-segments of freight-shipping markets.

Фінансове забезпечення підвищення ефективності судноплавного ринку

The crisis of shipping financing and financial management of maritime enterprises has become extremely important to ensure the efficient operation and survival of shipping companies around the world. The shipping industry is essentially capital-intensive and requires significant investments in new shipbuilding each year. High capital requirements for financing new construction programs and acquisitions on the secondary market have forced shipowners to seek financing outside their own private funds. European commercial banks have a long history of financing shipping assets. Bank debt financing remains the most important source of capital for the shipping industry today. The adoption of the shipping industry by the capital market, especially over the last decade, has opened the door to a much wider range of capital besides bank debt. Shipping companies today have many alternative financing options: from traditional mortgage loans to more complex financing structures, which may include: high-yield debt; sale and leaseback; mezzanine financing and other forms of debt related to share capital; private equity or open-ended financing, such as a parent limited liability company (MLP) and a special purpose vehicle (SPAC). Although a shipping company's ability to focus on market ups and downs depends primarily on the timing of its investment and chartering policy, the choice among all these alternative financing options may be equally important. Bank financing is the main source of capital for the shipping industry, providing flexible and low cost of capital for shipping companies. Banks are the most reliable and long-term providers of capital for the industry, which accounts for the largest majority of transport capital each year. From the banks' point of view, the shipping industry remains a favorable sector for doing business, despite volatility and relatively low margins. Banks are able to increase their profitability with low-margin financing, as vessels change hands regularly, leading to refinancing of loans until they are repaid. As world trade expands, the need for significant investment in larger and more complex assets will continue to grow, requiring more capital. During this course, shipping companies and capital suppliers will have to face the risks of extremely volatile operating cash flows and vessel prices, making risk management a central factor in any investment decision. Although bank debt financing is likely to remain the most important source of capital for the industry, shipping companies now have a wide range of alternatives available to them.

Method for Estimating Price of Second hand Ship with Multi Method

Demand fleet as a means of marine transport could be met by building new ships and buying second-hand vessels. The current constraints in building a new ship are the cost relatively expensive and take a long time, while the profit for the procurement of second hand ships time relative faster and cheaper price. This study aimed to identify the price of second hand vessels and to develop a cost estimation model second hand vessels. Collecting data with survey vessel prices do with field surveys and market surveys via the internet on websites selling used shipbroker. Data survey include the price, type of vessel, the main dimension, tonnage, machines, materials and speed. Multi-methods data processing and analysis consisting of market price approach, comparative vessel and physical pricing approach. Estimated price or appraisal vessel obtained from the average value of the three methods.

Dynamic Volatility Spillovers and Investor Sentiment Components Across Shipping Freight Rates

This paper investigates whether dynamic volatility spillovers across shipping freight markets can be explained by a comprehensive set of indicators capturing shipping investors’ sentiment. The results of this study reveal that an increase of the ratio of second-hand vessel price over newbuilding vessel price triggers an increase of the transmission of economic information within the dry-bulk and tanker segments; while an increase in the ratio of price to earnings and the ratio of the number of vessels sold over the number of vessels of the global fleet also trigger an increase of the economic information transmission within the dry-bulk and tanker vessels, respectively. These results have important implications for shipping market players as they reveal novel mechanisms of the transmission of economic information within the segments and across the sub-segments of shipping freight markets.

Asset pricing with mean reversion: The case of ships

We develop a heterogeneous-beliefs asset pricing model with microeconomic foundations that reproduces asset prices, cash flows and trading activity in a real asset economy. In contrast to the majority of financial markets’ behavioural models, and in line with the nature of the shipping industry, in this model agents extrapolate fundamentals. Formal estimation of the model indicates that an economy where a small fraction of agents significantly extrapolates fundamentals can explain the positive relation between earnings, vessel prices, and trading activity.

Earnings yield and predictability in the dry bulk shipping industry

We examine the relation between vessel prices, net earnings and holding period returns, in the dry bulk shipping industry. In doing so, we provide a framework for pricing shipping assets, with finite economic lives and also subject to wear and tear. Shipping earnings yields negatively forecast future net earnings growth while there is no consistent evidence of time-varying risk premia. We provide an economic interpretation for the obtained results and argue that the investment decisions of shipowners affect the current price of the asset through the expected cash flow stream, thus implying cash flow predictability.

Exploring vessel-price dynamics: the case of the dry bulk market

ABSTRACTWe investigate second-hand vessel price heterogeneity. Based on a sample of 5,591 purchase and sale transactions in the dry bulk sector over the period 1998–2016, we deploy a nonparametric regression technique to assess the determinants of vessel price and vessel price variability. Next, we use quantile regression to estimate the effect of regressors (sources of heterogeneity) at different parts of the vessel price distribution. We find evidence that main sources of vessel price heterogeneity are the age of the ship (the older the vessel the higher its maintenance cost), the 3-month LIBOR (reflecting the cost of financing) and the annual charter rate (revenues from operation). Their influence is stronger at all higher quantiles (periods of expansion) and the median of the vessel price distribution.

An empirical study on the dynamic relationship between freight and vessel prices of new-build, second-hand and demolition vessels in dry bulk market

An empirical study on the dynamic relationship between freight and vessel prices of new-build, second-hand and demolition vessels in dry bulk market

An integrated analysis of interrelationships within the very large gas carrier (VLGC) shipping market

This article uses structural equation modeling to analyze the various relationships between supply (fleet size), demand (in ton-miles), freight rates, and newbuilding and secondhand vessel prices in the very large gas carrier (VLGC) market. The paper establishes the high volatility of demand for VLGCs and its significant impact on freight rates. Furthermore, freight rates are shown to be the dominant factor affecting secondhand vessel prices. The influence of freight rates on newbuilding prices is rather indirect, through secondhand prices. The research also shows that supply and demand factors have little explanatory power for vessel price movements. This paper contributes to a better understanding of the VLGC market, which is growing rapidly but still remains under-researched. Unlike other bulk shipping markets with diversified trading patterns and cargo bases, the main VLGC trading routes are niche, thus creating more price volatility. In practical terms, our results should assist shipowners and related companies to understand changes in demand and fleet size and their effects on freight rates and ship prices, which in turn, could aid in chartering and investment decisions.

Investors’ behavior and dynamics of ship prices: A heterogeneous agent model

Distinguishing investors into speculators and operators, and classifying the former group into momentum and contrarian investors, we develop a heterogeneous agent model (HAM) to examine the dynamics of price of second-hand dry bulk ships. The results suggest that momentum strategies based on short-term measures of earnings perform significantly better than the contrarian or passive (buy-and-hold) strategies. The HAM seems to capture the dynamics of vessel prices and the investors’ behavior in the market for ships very well. Finally, an increase in participation of momentum investors tends to increase price volatility, whereas higher demand from contrarian investors seems to lower price variability.

Cash flow sensitivities during normal and crisis times: Evidence from shipping

Using a system of equations model, we analyze how cash flow shocks influence the investment and financing decisions of shipping firms in different economic environments. Even financially healthy shipping firms felt strong negative effects on their financing activities during the recent crisis. These firms were nevertheless able to increase long-term debt. Banks internalized the impact of foreclosure decisions on vessel prices and avoided an industry-wide collateral channel effect. Even during benign economic conditions, financially weak shipping firms underinvest because of their inability to raise sufficient external capital. The substitution between long- and short-term debt during the pre-2008 crisis periods shows that the composition of financing sources is more indicative of whether firms face financial constraints than the pure size of the financing-cash flow sensitivities. An analysis of firms’ excess cash holdings confirms the importance of financial flexibility.

An empirical analysis of freight rate and vessel price volatility transmission in global dry bulk shipping market

Global dry bulk shipping market is an important element of global economy and trade. Since newbuilding and secondhand vessels are often traded as assets and the freight rate is the key determinant of vessel price, it is important for shipping market participants to understand the market dynamics and price transmission mechanism over time to make suitable strategic decisions. To address this issue, a multi-variate GARCH model was applied in this paper to explore the volatility spillover effects across the vessel markets (including newbuilding and secondhand vessel markets) and freight market. Specifically, the BEKK parameterization of the multi-variate GARCH model (BEKK GARCH) was proposed to capture the volatility transmission effect from the freight market, newbuilding and secondhand vessel markets in the global dry bulk shipping industry. Empirical results reveal that significant volatility transmission effects exist in each market sector, i.e. capesize, panamax, handymax and handysize. Besides, the market volatility transmission mechanism varies among different vessel types. Moreover, some bilateral effects are found in the dry bulk shipping market, showing that lagged variances could affect the current variance in a counterpart market, regardless of the volatility transmission. A simple ratio is proposed to guide investors optimizing their portfolio allocations. The findings in this paper could provide unique insights for investors to understand the market and hedge their portfolios well.

The dynamics between newbuilding ship price volatility and freight volatility in dry bulk shipping market

Dry bulk shipping market is a key element of international trade. Newbuilding vessel prices tend to fluctuate drastically, however the price volatility mechanism and major determinants were neglected, regardless of the abundant research on newbuilding price formation and price determinants. This paper applied the GARCH (1, 1) model to investigate the key determinants of newbuilding vessel price volatility and how freight rate affects it. The empirical results revealed that freight rate volatility is the most important and the positive determinant for newbuilding price volatility in capesize, panamax, handymax and handysize sectors. Shipyard capacity change, exchange rate volatility and shipbuilding cost volatility are key determinants for some vessel types, while secondhand vessel price volatility is not the key determinant for any vessel type. Our findings could help the practitioners better understanding the market dynamics and managing the market risks.

A stochastic programming formulation for strategic fleet renewal in shipping

Shipping companies repeatedly face the problem of adjusting their vessel fleet to meet uncertain future transportation demands and compensating for aging vessels. In this paper, a new multi-stage stochastic programming formulation for strategic fleet renewal in shipping is proposed. The new formulation explicitly handles uncertainty in parameters such as future demand, freight rates and vessel prices. Extensive computational tests are performed, comparing different discretizations of the uncertain variables and different lengths of the planning horizon. It is shown that significantly better results are obtained when considering the uncertainty of future parameters, compared to using expected values.

The development of a performance index for KG funds and a comparison with other shipping-related indices

Despite their high economic importance, academic research has granted KG funds only marginal attention. A main reason is the lack of reliable performance data due to non-observable market prices during the lifetime of a KG fund. In order to measure the performance of KG funds, we construct an index using a database of more than 300 German one-ship companies during the sample period from December 1996 to December 2007. Looking at the distributional characteristics and the correlation structures, we analyse the co-movement of the KG index with a broad set of other shipping-related indices. The variation of our index is more dependent on vessel prices than on charter rates. Moreover, we use principal component analysis (PCA) in order to examine whether there are common structures and linkages between the different indices. On the basis of the resulting factor loadings, the KG index exhibits peculiar risk-return characteristics. PCA identifies one statistical factor that is specific to KG funds in the sense that only the KG index loads significantly on this particular factor. Our index does not merely represent a linear combination of vessel prices and freight rates, and it also does not stand in direct relationship with all other shipping-related indices. Instead, it constitutes a new index concept measuring the development of the market value of equity and distributions in the form of a performance index and incorporates specific information that is primarily of importance for one-ship companies. The availability of a performance index will likely increase transparency in the market for closed-end ship funds.

Demand chain management in the container shipping service industry

Abstract The growing service sector in the global economy signifies the need for applying service science to study the interdisciplinary nature of services. In particular, container shipping service is considered a key enabler of international trade and global economic development. To strengthen the role of shipping in supporting global seaborne trade, it is highly desirable to identify the determinants that influence the total capacity of the shipping industry, explain how the related business activities (e.g., demand for shipping service, vessel price, fleet size, etc.) are linked to the demand for container shipping service, and empirically verify the findings. This study builds on the demand chain management paradigm to analyze the service capacity of the container shipping industry. We establish a path-analytic model to explain how shipping demand affects such shipping-related variables as vessel price and to evaluate their effects on the service capacity of the industry. The empirically-tested model provides managers and researchers with insights on how to enhance the coordination and integration of a series of shipping-related variables from shipping demand to capacity management in the container shipping service industry.

Financing Shipping Companies and Shipping Operations: A Risk‐Management Perspective

Shipping has always been a volatile and cyclical business. The extreme changes in revenues, operating cash flows, and asset values during the recent financial crises have upset the usual means of financing shipping companies. While bank debt will remain important in the future, the new regulatory environment has been forcing shipping banks to shift these risks from their balance sheets to capital markets through instruments such as loan securitization. As a result, the shipping industry will increasingly look to capital markets for external funds. And shipping banks are likely to change from being commercial bank lending institutions to becoming more like investment banks that arrange a variety of financing solutions, including high yield bonds or public equity.Risk management will be central to shipping companies in this new environment. Shipping companies can manage their own risks by modifying operations, employing freight and vessel price derivatives, or adjusting their capital structures. To arrive at the value‐maximizing combination of these three basic methods, they must decide which risks to bear, which to manage internally, and which to transfer to the capital markets. These decisions require shipping financial managers to assess the effect of each risk on firm value, understand how each contributes to total risk, and determine the most cost‐effective way to limit that risk to an acceptable level.