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Modelling the Relationship between Ship Price and Freight Rate with Structural Changes

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  • Ying Kou
  • Meifeng Luo

Abstract

This study examines the relationship between the freight rate and ship prices, incorporating the influence of structural changes. The long-term ship price-freight rate relationship is modelled based on ship investment decisions, with the assumption that the freight rate follows an extended mean-reverting process. Theoretically, the sensitivity of ship prices to freight rate changes is found invariant to structural change. Empirically, we verify this result and find that the sensitivity is lower for larger ships and for new ships. We also find that second-hand ship investors are more interested in short-term benefits. © 2015 LSE and the University of Bath

Suggested Citation

  • Ying Kou & Meifeng Luo, 2015. "Modelling the Relationship between Ship Price and Freight Rate with Structural Changes," Journal of Transport Economics and Policy, University of Bath, vol. 49(2), pages 276-294, April.
    • Handle: RePEc:tpe:jtecpo:v:49:y:2015:i:2:p:276-294
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    Cited by:

    1. Xiwen Bai & Jasmine Siu Lee Lam, 2019. "An integrated analysis of interrelationships within the very large gas carrier (VLGC) shipping market," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(3), pages 372-389, September.
    2. Roar Adland & Haakon Ameln & Eirik A. Børnes, 2020. "Hedging ship price risk using freight derivatives in the drybulk market," Journal of Shipping and Trade, Springer, vol. 5(1), pages 1-18, December.
    3. Tvedt, Jostein, 2019. "Transport services and the valuation of flexibility over business cycles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 130(C), pages 517-528.
    4. Fan, Lixian & Gu, Bingmei & Yin, Jingbo, 2021. "Investment incentive analysis for second-hand vessels," Transport Policy, Elsevier, vol. 106(C), pages 215-225.
    5. Klepikov, Vladimir Pavlovich & Klepikov, Vladimir Vladimirovich, 2020. "Quantitative approach to estimating crude oil supply in Southern Europe," Resources Policy, Elsevier, vol. 69(C).
    6. Kou, Ying & Luo, Meifeng, 2018. "Market driven ship investment decision using the real option approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 714-729.
    7. Javier Población, 2017. "Are recent tanker freight rates stationary?," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(4), pages 650-666, December.

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