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Shipping risk management practice revisited: A new portfolio approach

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  • Alexandridis, George
  • Sahoo, Satya
  • Song, Dong-Wook
  • Visvikis, Ilias

Abstract

The international shipping industry is susceptible to heightened market volatility manifested in significant freight rate fluctuations and thus diversifying and hedging the associated risks have become central to shipping business practice. Building on the extant literature on shipping freight derivatives, this study develops a portfolio-based methodological framework aiming to improve freight rate risk management. The study also offers, for the first time, evidence of the hedging performance of the recently developed container freight futures market. Our approach utilises portfolios of container, dry bulk and tanker freight futures along with corresponding portfolios of physical freight rates in order to improve the efficacy of risk diversification for shipping market practitioners. The empirical findings uncovered in this study have important implications for overall business, commercial, and hedging strategies in the shipping industry, while they can ultimately lead to a more liquid and efficient freight futures market.

Suggested Citation

  • Alexandridis, George & Sahoo, Satya & Song, Dong-Wook & Visvikis, Ilias, 2018. "Shipping risk management practice revisited: A new portfolio approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 110(C), pages 274-290.
    • Handle: RePEc:eee:transa:v:110:y:2018:i:c:p:274-290
    DOI: 10.1016/j.tra.2017.11.014
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    Cited by:

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    2. Lai, Xiaofan & Tao, Yi & Wang, Fan & Zou, Zongbao, 2019. "Sustainability investment in maritime supply chain with risk behavior and information sharing," International Journal of Production Economics, Elsevier, vol. 218(C), pages 16-29.
    3. Pouliasis, Panos K. & Papapostolou, Nikos C. & Kyriakou, Ioannis & Visvikis, Ilias D., 2018. "Shipping equity risk behavior and portfolio management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 178-200.
    4. Wang, Kelly Yujie & Wen, Yuan & Yip, Tsz Leung & Fan, Zuojun, 2021. "Carrier-shipper risk management and coordination in the presence of spot freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    5. Gu, Yimiao & Chen, Zhenxi & Lien, Donald & Luo, Meifeng, 2020. "Quantile hedge ratio for forward freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 138(C).
    6. Bai, Xiwen & Cheng, Liangqi & Iris, Çağatay, 2022. "Data-driven financial and operational risk management: Empirical evidence from the global tramp shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).

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    More about this item

    Keywords

    Shipping risk management; Freight derivatives; Portfolio diversification; Hedging effectiveness; Hedge ratios;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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