Relationships between the freight and ship markets in the dry bulk and tanker sectors

Abstract

This thesis focused on three different but interrelated markets in the international shipping industry, namely the freight market, new-building and second-hand ship markets. In each market, price was chosen as the key variable to examine the existence of the dynamic relationships among these variables for three different vessel sizes in both the dry bulk and tanker sectors. Granger causality test is then applied after controlling for the existence of cointegration. First, the test within only the ship markets is carried out. Monthly new-building and second-hand ship prices (5-year-old and 10-year-old) for three ship types in both dry bulk and tanker sectors are selected. Results show that, in general, the second-hand ship price leads the new-building price in the dry bulk sector, while the new-building ship price leads the second-hand price in the tanker sector in most cases. This conclusion could be further confirmed when the shipping environment is booming. Finally, the hypothesis that the average dry bulk new-building ship price leads the tanker new-building ship price is tested to explain the opposite lead-lag relations, and more frequent trading activities in the dry bulk sector than in the tanker sector are concerned to interpret this conclusion. Second, the test within three markets is conducted. The results from this part also indicated that the temporal relationships between the ocean freight and ship markets are differed in the dry bulk and tanker sectors. For the dry bulk sector, the time charter rate is an indicator of international shipping. In the counterpart, this indicator is more likely to be played by the new-building ship price. These results suggest that ship-owners or investors should make their decision of getting ships based on the change of freight market in the dry bulk sector. But for the tanker sector, ship-owners should take the change of the new-building market as an important signal. Furthermore, it can be concluded that the different structures of the dry bulk and tanker sectors are more possible to be caused by the role played by the new-building ship price or even the new-building ship market. All the findings in this thesis suggest that the temporal relationships between the main shipping markets are more complex than previously expected. They all imply that the economic structures are obviously distinct in the dry bulk and tanker sectors. Therefore, investigations should be carefully conducted separately for the dry bulk and tanker sectors in the future.