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The value of foresight in the drybulk freight market

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  • Prochazka, Vit

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Adland, Roar

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Wallace, Stein W.

    (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract

We analyze the value of foresight in the drybulk freight market when repositioning a vessel through space and time. In order to do that, we apply an optimization model on a network with dynamic regional freight rate differences and stochastic travel times. We evaluate the value of the geographical switching option for three cases: the upper bound based on having perfect foresight, the lower bound based on a "coin flip", and the case of perfect foresight but only for a limited horizon. By combining a neural network with optimization, we can assess the impact of varying foresight horizon on economic performance. In a simple but realistic two-region case, we show empirically that the upper bound for large vessels can be as high as 25% cumulative outperformance, and that a significant portion of this theoretical value can be captured with limited foresight of several weeks. Our research sheds light on the important issue of spatial efficiency in global ocean freight markets and provides a benchmark for the value of investing in predictive analysis.

Suggested Citation

  • Prochazka, Vit & Adland, Roar & Wallace, Stein W., 2018. "The value of foresight in the drybulk freight market," Discussion Papers 2018/1, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2018_001
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    References listed on IDEAS

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    Cited by:

    1. Wang, Kelly Yujie & Wen, Yuan & Yip, Tsz Leung & Fan, Zuojun, 2021. "Carrier-shipper risk management and coordination in the presence of spot freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    2. 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).
    3. Yang, Dong & Wu, Lingxiao & Wang, Shuaian, 2021. "Can we trust the AIS destination port information for bulk ships?–Implications for shipping policy and practice," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).

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    More about this item

    Keywords

    Dry bulk market; dynamic programming; neural network; foresight;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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