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Short-run freight rate formation in the VLCC market: A theoretical framework

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  • Jostein Tvedt

    (Institute for Research in Economics and Business Administration, Bergen, Norway)

Abstract

The article derives a short-run freight rate equilibrium in the VLCC market based on only a limited number of market characteristics. Supply is characterised by the ships’ distance to the loading area. Demand is characterised by the point of time at which charterers prefer to dispatch their cargoes. The set of stable matches of tonnage and cargo is restricted upward by a maximum freight rate level, given in the case the shipowner sets the rate, and restricted downward by a minimum freight rate level, given the case the charterer sets the rate. In order to assign a unique freight rate to every match of cargo and tonnage we introduce, the shipbrokers’ perception of market psychology and their incentives to maximise expected revenues from commissions.

Suggested Citation

  • Jostein Tvedt, 2011. "Short-run freight rate formation in the VLCC market: A theoretical framework," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 13(4), pages 442-455, December.
    • Handle: RePEc:pal:marecl:v:13:y:2011:i:4:p:442-455
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    Cited by:

    1. Prochazka, Vít & Adland, Roar & Wolff, François-Charles, 2019. "Contracting decisions in the crude oil transportation market: Evidence from fixtures matched with AIS data," Transportation Research Part A: Policy and Practice, Elsevier, vol. 130(C), pages 37-53.
    2. Adland, Roar & Cariou, Pierre & Wolff, Francois-Charles, 2016. "The influence of charterers and owners on bulk shipping freight rates," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 86(C), pages 69-82.

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