Title: The dynamics between newbuilding ship price volatility and freight volatility in dry bulk shipping market

Authors: Lei Dai; Hao Hu; Feier Chen; Jianing Zheng

Addresses: Department of Transportation, Shipping and Logistics, State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Rd., 200240, Shanghai, China ' Department of Transportation, Shipping and Logistics, State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Rd., 200240, Shanghai, China ' Department of Transportation, Shipping and Logistics, State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Rd., 200240, Shanghai, China ' Department of Transportation, Shipping and Logistics, State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Rd., 200240, Shanghai, China

Abstract: Dry bulk shipping market is a key element of international trade. Newbuilding vessel prices tend to fluctuate drastically, however the price volatility mechanism and major determinants were neglected, regardless of the abundant research on newbuilding price formation and price determinants. This paper applied the GARCH (1, 1) model to investigate the key determinants of newbuilding vessel price volatility and how freight rate affects it. The empirical results revealed that freight rate volatility is the most important and the positive determinant for newbuilding price volatility in capesize, panamax, handymax and handysize sectors. Shipyard capacity change, exchange rate volatility and shipbuilding cost volatility are key determinants for some vessel types, while secondhand vessel price volatility is not the key determinant for any vessel type. Our findings could help the practitioners better understanding the market dynamics and managing the market risks.

Keywords: ship price volatility; freight volatility; dry bulk shipping market; newbuilding ship prices; freight rates; market dynamics; shipyard capacity; exchange rate volatility; shipbuilding costs; secondhand vessel prices; market risks.

DOI: 10.1504/IJSTL.2015.069666

International Journal of Shipping and Transport Logistics, 2015 Vol.7 No.4, pp.393 - 406

Available online: 29 May 2015 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article