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Spatial efficiency in the bulk freight market

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  • Roar Adland
  • Fredrik Bjerknes
  • Christian Herje

Abstract

In the short run, there can be substantial differences in spot freight earnings between geographical regions of the global freight market for bulk carriers. Such differences can be consistent with an efficient market if they are temporary and if they cannot be exploited financially by pursuing chartering strategies that are based on publicly available information. In this paper, we apply a simple optimal switching model to evaluate whether such chartering strategies exist. We model the spot freight rate differential between the Atlantic and Pacific basins as a mean-reverting Ornstein–Uhlenbeck process and the entry–exit decision using the discount factor approach, which results in optimal trigger values for the entry/exit from each basin. Our empirical results suggest that the market is spatially efficient during normal freight market conditions when there is a surplus of vessels. The tight market conditions during the 2003–2008 freight market boom caused a persistent upward bias in Atlantic freight rates, but also here we find little added value from pursuing an active switching strategy.

Suggested Citation

  • Roar Adland & Fredrik Bjerknes & Christian Herje, 2017. "Spatial efficiency in the bulk freight market," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(4), pages 413-425, May.
    • Handle: RePEc:taf:marpmg:v:44:y:2017:i:4:p:413-425
    DOI: 10.1080/03088839.2017.1298864
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    References listed on IDEAS

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    1. Onofrei, Mihaela & Lupu, Dan, 2014. "The modelling of forecasting the bankruptcy in Romania," MPRA Paper 95511, University Library of Munich, Germany.
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    Cited by:

    1. Prochazka, Vit & Adland, Roar & Wallace, Stein W., 2019. "The value of foresight in the drybulk freight market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 129(C), pages 232-245.
    2. Caldeira dos Santos, Murillo & Pereira, Fábio Henrique, 2021. "Development and application of a dynamic model for road port access and its impacts on port-city relationship indicators," Journal of Transport Geography, Elsevier, vol. 96(C).
    3. Adland, Roar & Prochazka, Vit, 2021. "The value of timecharter optionality in the drybulk market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    4. Adland, Roar & Benth, Fred Espen & Koekebakker, Steen, 2018. "Multivariate modeling and analysis of regional ocean freight rates," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 194-221.
    5. Tvedt, Jostein, 2022. "Floating offshore wind and the real options to relocate," Energy Economics, Elsevier, vol. 116(C).
    6. Roar Adland & David Hansson & Levin von der Wense, 2017. "Valuing cargo flexibility in oil transportation," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(7), pages 803-814, October.
    7. Sercan Erol, 2017. "Calculation of the freight revenues in Turkey-focused maritime transportation," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(7), pages 815-824, October.

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