Structural dynamics and volatility channels in bulk shipping: A time and frequency domain connectedness analysis

Given the importance of time varying term structure relationships, the connectedness of various time charter contract with the ship price and demolition market varies under different market conditions. This paper investigates dynamic connectedness among different shipping segment of dry bulk sector utilizing the time and frequency domain TVP-VAR connectedness method covering global crisis and geopolitical shocks. Our empirical results indicate strong asymmetric interconnectedness across all segments particularly spillover effect is relatively higher in Panamax vessel. We find evidence of strong long-term spillover impact followed by short-term except Capsize vessel. When analyzing market influence, the average spot freight market leads the system from short to long-term followed by time charter contracts (12-month) across all shipping markets. Our analysis shows that the newbuilding market equally sensitive to external shocks in the short and long-term period while the secondhand market is relatively sensitive to other shocks in the long-term period. In particular, the secondhand ship price of Panamax and Handymax receives strong spillover from the short to long-term period. Moreover, we observe that the demolition market play critical role as positive transmitter of different sizes specially in the Panamax and Handymax segment. Our results enhance understanding of decision-making in cash flow, ship and asset management by showing asymmetric proactive and risk-tolerant behavior in the short and long-term periods.