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Freight rate volatility and flag-switching decisions

Author

Listed:
  • Maria I. Chondrokouki

    (Athens University of Economics and Business)

  • Andrianos E. Tsekrekos

    (Athens University of Economics and Business)

Abstract

An important decision facing shipping firms is the choice between an open- or national ship registry. We empirically test the predictions of Kavussanos and Tsekrekos (in: Cullinane (ed) The international handbook of maritime economics, Edward Elgar Publishing, Cheltenham, pp 47–62, 2011), who formulate the decision to change a vessel’s flag as an optimal switching problem, and predict that shipping companies register vessels in open registries in periods of high volatility in freight rates, and return to national registers in periods of low volatility. We use a random sample of 560 bulk carriers built between 1999 and 2017 and, following Luo et al. (Maritime Policy and Management 44:603–622, 2017), we employ a duration model (Cox proportional hazards model). In it, the hazard rate of time until a flag change is a function of vessel type, taxation, inspection rates, and a proxy of volatility in freight rates. Our empirical findings suggest that increased freight rate volatility has a positive effect on the hazard of flag change from a national flag to an open registry, and increased freight rate volatility is associated with a short time interval to (and a high probability of) a flag change. These findings should be of interest to shipowners and flag administrators, since they imply that in times of high volatility in freight rates, frequent flag changes from national flags to open registries are observed.

Suggested Citation

  • Maria I. Chondrokouki & Andrianos E. Tsekrekos, 2022. "Freight rate volatility and flag-switching decisions," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 24(2), pages 395-414, June.
  • Handle: RePEc:pal:marecl:v:24:y:2022:i:2:d:10.1057_s41278-021-00206-6
    DOI: 10.1057/s41278-021-00206-6
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    References listed on IDEAS

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