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The dynamics between freight volatility and fleet size growth in dry bulk shipping markets

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  • Xu, Jane Jing
  • Yip, Tsz Leung
  • Marlow, Peter B.

Abstract

This paper studies the relationship between the time-varying volatility of dry bulk freight rates and the change of the supply of fleet trading in dry bulk markets. An abundance of research has been done to understand the time-varying characteristics of freight rate volatility, yet few have discussed the determinants of freight volatility. We therefore examine freight volatility against the changes in fleet size and other shipping market variables over January 1973–October 2010. The study employs a two-step model specification. The first step is the measurement of freight rate volatility through an AR-GARCH model; the second step is the analysis of the relationship between freight rate volatility and fleet size growth through a GMM regression. We confirm similar findings in the literature that freight rate volatility is time varying. Furthermore, the results reveal that the change in fleet size positively affects freight rate volatility, while the spot rate volatility of Capesize dry bulk exhibits a stronger reaction to the change in fleet size. The results of this study contribute in a general sense to understanding the systematic risk of shipping markets.

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  • Xu, Jane Jing & Yip, Tsz Leung & Marlow, Peter B., 2011. "The dynamics between freight volatility and fleet size growth in dry bulk shipping markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 983-991.
    • Handle: RePEc:eee:transe:v:47:y:2011:i:6:p:983-991
    DOI: 10.1016/j.tre.2011.05.008
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    1. Lim, Kian Guan & Nomikos, Nikos K. & Yap, Nelson, 2019. "Understanding the fundamentals of freight markets volatility," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 1-15.
    2. Andreou, Panayiotis C. & Louca, Christodoulos & Panayides, Photis M., 2012. "Valuation effects of mergers and acquisitions in freight transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(6), pages 1221-1234.
    3. Xiwen Bai & Jasmine Siu Lee Lam, 2019. "An integrated analysis of interrelationships within the very large gas carrier (VLGC) shipping market," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(3), pages 372-389, September.
    4. Mark Ching-Pong Poo & Tsz Leung Yip, 2019. "An optimization model for container inventory management," Annals of Operations Research, Springer, vol. 273(1), pages 433-453, February.
    5. Peng, Zixuan & Shan, Wenxuan & Guan, Feng & Yu, Bin, 2016. "Stable vessel-cargo matching in dry bulk shipping market with price game mechanism," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 95(C), pages 76-94.
    6. Heij, C. & Knapp, S., 2012. "Dynamics in the dry bulk market," Econometric Institute Research Papers EI 2012-18, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    7. Chen, Feier & Tian, Kang & Ding, Xiaoxu & Miao, Yuqi & Lu, Chunxia, 2016. "Finite-size effect and the components of multifractality in transport economics volatility based on multifractal detrending moving average method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 1058-1066.
    8. Yang, Zhongzhen & Jiang, Zhenfeng & Notteboom, Theo & Haralambides, Hercules, 2019. "The impact of ship scrapping subsidies on fleet renewal decisions in dry bulk shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 126(C), pages 177-189.
    9. 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).
    10. Regli, Frederik & Nomikos, Nikos K., 2019. "The eye in the sky – Freight rate effects of tanker supply," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 402-424.
    11. Skantzouri, Efthymia Nefeli & Sambracos, Evangelos, 2018. "Freight Rate Volatility and Vessels Size in Tankers’ Sector," MPRA Paper 97896, University Library of Munich, Germany, revised 25 Nov 2019.
    12. Sun, Xiaolei & Tang, Ling & Yang, Yuying & Wu, Dengsheng & Li, Jianping, 2014. "Identifying the dynamic relationship between tanker freight rates and oil prices: In the perspective of multiscale relevance," Economic Modelling, Elsevier, vol. 42(C), pages 287-295.
    13. Mitroussi, K. & Abouarghoub, W. & Haider, J.J. & Pettit, S.J. & Tigka, N., 2016. "Performance drivers of shipping loans: An empirical investigation," International Journal of Production Economics, Elsevier, vol. 171(P3), pages 438-452.
    14. Yang, Jialin & Ge, Ying-En & Li, Kevin X., 2022. "Measuring volatility spillover effects in dry bulk shipping market," Transport Policy, Elsevier, vol. 125(C), pages 37-47.
    15. Notteboom, Theo E. & Parola, Francesco & Satta, Giovanni, 2019. "The relationship between transhipment incidence and throughput volatility in North European and Mediterranean container ports," Journal of Transport Geography, Elsevier, vol. 74(C), pages 371-381.
    16. Liu, Junlin & Chen, Feier, 2018. "Asymmetric volatility varies in different dry bulk freight rate markets under structure breaks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 316-327.
    17. Zhang, Yi, 2018. "Investigating dependencies among oil price and tanker market variables by copula-based multivariate models," Energy, Elsevier, vol. 161(C), pages 435-446.
    18. Fan, Lixian & Gu, Bingmei & Yin, Jingbo, 2021. "Investment incentive analysis for second-hand vessels," Transport Policy, Elsevier, vol. 106(C), pages 215-225.
    19. Bai, Xiwen & Lam, Jasmine Siu Lee & Jakher, Astha, 2021. "Shipping sentiment and the dry bulk shipping freight market: New evidence from newspaper coverage," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).

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