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A Discrete-Time Stochastic Partial Equilibrium Model of the Spot Freight Market

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  • Roar Adland
  • Siri P. Strandenes

Abstract

This paper presents a stochastic extension of the classical partial equilibrium models of the spot freight market. The supply of sea transport in the model is based on microeconomic analysis of the supply characteristics of a given fleet and orderbook, in this case the VLCC fleet. It also develops a fully stochastic representation of the aggregate scrapping and contracting behaviour in the market. Combined with stochastic demand, the model is used to simulate the probability distribution of future spot freight rates and fleet size conditional on current market conditions. The model can be applied to a wide range of maritime economic problems such as the evaluation of risk for ship loans and freight derivative portfolios. © 2007 LSE and the University of Bath

Suggested Citation

  • Roar Adland & Siri P. Strandenes, 2007. "A Discrete-Time Stochastic Partial Equilibrium Model of the Spot Freight Market," Journal of Transport Economics and Policy, University of Bath, vol. 41(2), pages 189-218, May.
    • Handle: RePEc:tpe:jtecpo:v:41:y:2007:i:2:p:189-218
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    Cited by:

    1. Zheng, Shiyuan & Lan, Xiangang, 2016. "Multifractal analysis of spot rates in tanker markets and their comparisons with crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 547-559.
    2. Nektarios A. Michail & Konstantinos D. Melas, 2021. "Sentiment-Augmented Supply and Demand Equations for the Dry Bulk Shipping Market," Economies, MDPI, vol. 9(4), pages 1-14, November.
    3. 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.
    4. Roar Adland & Pierre Cariou & François-Charles Wolff, 2018. "Comparing transaction-based and expert-generated price indices in the market for offshore support vessels," Working Papers halshs-01843720, HAL.
    5. Rau, Philipp & Spinler, Stefan, 2017. "Alliance formation in a cooperative container shipping game: Performance of a real options investment approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 155-175.
    6. Rau, Philipp & Spinler, Stefan, 2016. "Investment into container shipping capacity: A real options approach in oligopolistic competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 130-147.
    7. Panos K. Pouliasis & Christos Bentsos, 2024. "Oil price uncertainty and the relation to tanker shipping," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 2472-2494, April.
    8. Adland, Roar & Jia, Haiying & Strandenes, Siri P., 2018. "The determinants of vessel capacity utilization: The case of Brazilian iron ore exports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 110(C), pages 191-201.
    9. Javier Población & Gregorio Serna, 2018. "A common long-term trend for bulk shipping prices," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 20(3), pages 421-432, September.
    10. Papapostolou, Nikos C. & Pouliasis, Panos K. & Kyriakou, Ioannis, 2017. "Herd behavior in the drybulk market: an empirical analysis of the decision to invest in new and retire existing fleet capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 104(C), pages 36-51.
    11. Adland, Roar & Alizadeh, Amir H., 2018. "Explaining price differences between physical and derivative freight contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 20-33.
    12. Zhong, Huiling & Zhang, Fa & Gu, Yimiao, 2021. "A Stackelberg game based two-stage framework to make decisions of freight rate for container shipping lines in the emerging blockchain-based market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    13. Sun, Xiaolei & Tang, Ling & Yang, Yuying & Wu, Dengsheng & Li, Jianping, 2014. "Identifying the dynamic relationship between tanker freight rates and oil prices: In the perspective of multiscale relevance," Economic Modelling, Elsevier, vol. 42(C), pages 287-295.
    14. Assmann, Lisa & Andersson, Jonas & Eskeland, Gunnar S., 2015. "Missing in Action? Speed optimization and slow steaming in maritime shipping," Discussion Papers 2015/13, Norwegian School of Economics, Department of Business and Management Science.
    15. Engelen, Steve & Norouzzadeh, Payam & Dullaert, Wout & Rahmani, Bahareh, 2011. "Multifractal features of spot rates in the Liquid Petroleum Gas shipping market," Energy Economics, Elsevier, vol. 33(1), pages 88-98, January.
    16. 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.
    17. Adland, Roar & Jia, Haiying & Lu, Jing, 2008. "Price dynamics in the market for Liquid Petroleum Gas transport," Energy Economics, Elsevier, vol. 30(3), pages 818-828, May.
    18. Siddiqui, Atiq W. & Basu, Rounaq, 2020. "An empirical analysis of relationships between cyclical components of oil price and tanker freight rates," Energy, Elsevier, vol. 200(C).
    19. Tezuka, Koichiro & Ishii, Masahiro & Ishizaka, Motokazu, 2012. "An equilibrium price model of spot and forward shipping freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 730-742.

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