The dynamics of shipbuilding in shipping : an econometric analysis

Abstract

In this thesis, we perform an empirical analysis of the role of shipbuilding in the large shipping world. Shipbuilding has scarcely been studied from the economic perspective in shipping related literatures; most studies only involve shipbuilding as related variables when discussing other shipping markets. A large amount of studies on shipping markets are based on the efficient market theory. However, given the unpredictable and ever-changing nature of shipping industry, it is not convincing to study the market statically, we focus specifically on the factor of 'time lag' between different shipping segments through a comprehensive econometric analysis. We look into the dynamics between freight and shipbuilding markets in a more delicate way: the interaction among freight rate, shipbuilding order and delivery. Our first research question concerns the causal mechanism from freight rate to shipbuilding price and indicates that the investment behaviour in physical assets for future service capacity is encouraged by a strong service market. The second research question discusses the determinants of shipbuilding activities. Through pooled panel data analysis, we verify the important role of freight market to the ship investment decision and the strong cluster effect of Asian shipbuilding countries. Our third research question looks into the impact of the change of fleet size on freight volatility. Our results prove that fleet size is a critical determinant of freight volatility and affects it in a nonlinear manner. Our study contributes to the maritime economics literature by providing a comprehensive economic analysis of shipbuilding. Shipbuilding variables do not interact with other economic variables in a static way, hence time lag issues need to be largely considered in the analysis. The dynamics among freight rate, shipbuilding order and delivery act in a cyclical manner. While the shipbuilding market largely depends on the operating environment of other shipping markets, it influences back freight market profoundly.