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The Time Dimension And Value Of Flexibility In Resource Allocation: The Case Of The Maritime Industry

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Author Info

  • Axarloglou, Kostas

    (Democritus University of Thrace, Department of International Economic Relations and Development)

  • Visvikis, Ilias

    (ALBA Graduate Business School)

  • Zarkos, Stefanos

    (ALBA Graduate Business School)

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    Abstract

    The paper analyses empirically 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, we demonstrate that the time-varying properties of the spread is the outcome of the strategic decision to time-commit company resources in the industry. It is shown that, 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.

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    File URL: http://utopia.duth.gr/~pgkogkas/duthwp/2-2012.pdf
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    Bibliographic Info

    Paper provided by Democritus University of Thrace, Department of Economics in its series DUTH Research Papers in Economics with number 2-2012.

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    Length: 28 pages
    Date of creation: 27 Jan 2012
    Date of revision:
    Handle: RePEc:ris:duthrp:2012_002

    Contact details of provider:
    Postal: Department of Economics, University Campus, Komotini, 69100, Greece
    Phone: (25310) 39.503
    Fax: (25310) 39.502
    Web page: http://www.econ.duth.gr/
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    Related research

    Keywords: Maritime Industry; Resource Allocation; Strategic Flexibility; Commitment; Real Options; Market Conditions;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Tun-Hsiang (Edward) Yu & David A. Bessler & Stephen W. Fuller, 2007. "Price Dynamics in U.S. Grain and Freight Markets," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 55(3), pages 381-397, 09.
    2. Haigh, Michael S. & Bryant, Henry L., 2001. "The effect of barge and ocean freight price volatility in international grain markets," Agricultural Economics, Blackwell, vol. 25(1), pages 41-58, June.
    3. Manolis G. Kavussanos & Amir H. Alizadeh-M, 2002. "The Expectations Hypothesis of the Term Structure and Risk Premiums in Dry Bulk Shipping Freight Markets," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 36(2), pages 267-304, May.
    4. Panos Kouvelis & Kostas Axarloglou & Vikas Sinha, 2001. "Exchange Rates and the Choice of Ownership Structure of Production Facilities," Management Science, INFORMS, vol. 47(8), pages 1063-1080, August.
    5. Jeffrey A. Miron, 1990. "The Economics of Seasonal Cycles," NBER Working Papers 3522, National Bureau of Economic Research, Inc.
    6. Kavussanos, Manolis G. & Alizadeh-M, Amir H., 2001. "Seasonality patterns in dry bulk shipping spot and time charter freight rates," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 37(6), pages 443-467, December.
    7. Kostas Axarloglou & Stefanos Zarkos, 2010. "Market demand and the duration of business projects: the housing industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(7), pages 477-487.
    8. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    9. Manolis G. Kavussanos & Ilias D. Visvikis, 2006. "Shipping freight derivatives: a survey of recent evidence," Maritime Policy & Management, Taylor & Francis Journals, vol. 33(3), pages 233-255, July.
    10. Sødal, Sigbjørn & Koekebakker, Steen & Aadland, Roar, 2008. "Market switching in shipping -- A real option model applied to the valuation of combination carriers," Review of Financial Economics, Elsevier, vol. 17(3), pages 183-203, August.
    11. Axarloglou, Kostas & Kouvelis, Panos, 2007. "Hysteresis in adjusting the ownership structure of foreign subsidiaries," International Business Review, Elsevier, vol. 16(4), pages 494-506, August.
    12. V. Krishnan & Shantanu Bhattacharya, 2002. "Technology Selection and Commitment in New Product Development: The Role of Uncertainty and Design Flexibility," Management Science, INFORMS, vol. 48(3), pages 313-327, March.
    13. Helen B. Bendall & Alan F. Stent, 2007. "Maritime investment strategies with a portfolio of real options," Maritime Policy & Management, Taylor & Francis Journals, vol. 34(5), pages 441-452, October.
    14. Helen B Bendall & Alan F Stent, 2005. "Ship Investment under Uncertainty: Valuing a Real Option on the Maximum of Several Strategies," Maritime Economics and Logistics, Palgrave Macmillan, vol. 7(1), pages 19-35, March.
    15. Kavussanos, Manolis G. & Visvikis, Ilias D. & Batchelor, Roy A., 2004. "Over-the-counter forward contracts and spot price volatility in shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(4), pages 273-296, July.
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