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Over-the-counter forward contracts and spot price volatility in shipping

Author

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  • Kavussanos, Manolis G.
  • Visvikis, Ilias D.
  • Batchelor, Roy A.

Abstract

The purpose of this paper is to investigate the impact of the introduction of Forward Freight Agreement (FFA) trading on spot market price volatility in two panamax Atlantic (1 and 1A) and two panamax Pacific (2 and 2A) trading routes of the dry-bulk shipping industry. The results suggest that the onset of FFA trading: (a) decreased spot price volatility in all investigated routes, (b) has had an impact on the asymmetry of volatility in Pacific routes, and (c) substantially improved the quality and speed of information flow in three out of the four investigated routes. After introducing control variables, that may affect price volatility, the results indicate that only in voyage routes may the reduction in volatility be a direct consequence of FFA trading. It seems that the introduction of FFA trading has not had a detrimental effect on the spot market, with an improvement in the way information is transmitted into spot prices following the onset of FFA trading.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:transe:v:40:y:2004:i:4:p:273-296
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    Cited by:

    1. Alexandridis, George & Kavussanos, Manolis G. & Kim, Chi Y. & Tsouknidis, Dimitris A. & Visvikis, Ilias D., 2018. "A survey of shipping finance research: Setting the future research agenda," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 164-212.
    2. Ziaul Haque Munim & Hans-Joachim Schramm, 0. "Forecasting container freight rates for major trade routes: a comparison of artificial neural networks and conventional models," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 0, pages 1-18.
    3. Alizadeh, Amir H., 2013. "Trading volume and volatility in the shipping forward freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 250-265.
    4. Ziaul Haque Munim & Hans-Joachim Schramm, 2017. "Forecasting container shipping freight rates for the Far East – Northern Europe trade lane," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(1), pages 106-125, March.
    5. Batchelor, Roy & Alizadeh, Amir & Visvikis, Ilias, 2007. "Forecasting spot and forward prices in the international freight market," International Journal of Forecasting, Elsevier, vol. 23(1), pages 101-114.
    6. Okan Duru & Sheng Huang & Emrah Bulut & Shigeru Yoshida, 2013. "Multi-layer quality function deployment (QFD) approach for improving the compromised quality satisfaction under the agency problem: A 3D QFD design for the asset selection problem in the shipping indu," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(4), pages 2259-2280, June.
    7. Wenming Shi & Kevin X. Li, 2017. "Themes and tools of maritime transport research during 2000-2014," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(2), pages 151-169, February.
    8. Axarloglou, Kostas & Visvikis, Ilias & Zarkos, Stefanos, 2013. "The time dimension and value of flexibility in resource allocation: The case of the maritime industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 35-48.
    9. Wenming Shi & Kevin X. Li & Zhongzhi Yang & Ganggang Wang, 2017. "Time-varying copula models in the shipping derivatives market," Empirical Economics, Springer, vol. 53(3), pages 1039-1058, November.
    10. Pelagidis, Theodore & Panagiotopoulos, George, 2019. "Forward Freight Agreements and Market Transparency in the Capesizs Sector," MPRA Paper 107035, University Library of Munich, Germany.
    11. Adland, Roar & Alizadeh, Amir H., 2018. "Explaining price differences between physical and derivative freight contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 20-33.
    12. Angelopoulos, Jason & Sahoo, Satya & Visvikis, Ilias D., 2020. "Commodity and transportation economic market interactions revisited: New evidence from a dynamic factor model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    13. Koekebakker, Steen & Adland, Roar & Sødal, Sigbjørn, 2007. "Pricing freight rate options," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(5), pages 535-548, September.
    14. 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.
    15. 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).
    16. Kim, Jong-Jin & Zheng, Xiaoyong, 2015. "Effects of Alternative Marketing Arrangements on the Spot Market Price Distribution in the U.S. Hog Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-24, May.
    17. Ioannis Karaoulanis & Theodore Pelagidis, 2021. "Panamax markets behaviour: explaining volatility and expectations," Journal of Shipping and Trade, Springer, vol. 6(1), pages 1-24, December.
    18. Pelagidis, Theodore & Karaoulanis, Ioannis, 2021. "Capesize markets behavior: Explaining volatility and expectations," MPRA Paper 107034, University Library of Munich, Germany.
    19. Roar Adland & Haiying Jia, 2017. "Simulating physical basis risks in the Capesize freight market," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(2), pages 196-210, June.
    20. 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.
    21. Maitra, Debasish & Chandra, Saurabh & Dash, Saumya Ranjan, 2020. "Liner shipping industry and oil price volatility: Dynamic connectedness and portfolio diversification," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 138(C).
    22. Ziaul Haque Munim & Hans-Joachim Schramm, 2021. "Forecasting container freight rates for major trade routes: a comparison of artificial neural networks and conventional models," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 23(2), pages 310-327, June.
    23. Ruina Yang & Chung-Yee Lee & Qian Liu & Song Zheng, 2019. "A carrier–shipper contract under asymmetric information in the ocean transport industry," Annals of Operations Research, Springer, vol. 273(1), pages 377-408, February.

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