Dynamics and interdependencies among different shipping freight markets

ABSTRACT

An appropriate description of freight rate behaviors is important to maritime forecasting and portfolio diversification in shipping freight markets. We employ general autoregressive conditional heteroscedasticity-copula models to capture the dynamics and interdependencies among shipping freight rates. Using weekly data from 5 January 2002 to 24 March 2018, our main findings are first, Granger causality tests confirm the presence of one-way causality running from the dry bulk and the clean tanker freight rate returns to the container and the dirty tanker freight rate returns, respectively. Second, volatility persistence exists in individual shipping freight market and, in particular, it is much less persistent in the clean tanker freight market. Third, nonlinear dynamic interdependencies among freight rate returns are captured by performing time-varying copulas. The results not only deepen our understanding of freight rate behaviors but also offer new insights into portfolio diversification and risk management in the shipping freight markets.

KEYWORDS:

• shipping freight markets
• dynamics
• interdependencies
• granger causality tests
• GARCH-copula

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Based on data from the Review of Maritime Transport (2017), the authors calculated the growth rates.

2. According to Clarksons Research, when one market is performing weakly, there is generally another that is strong, and even when most of the markets are down, there is often one market that provides at least some counterbalance by performing more robustly (Shipping Intelligence Weekly, No.1224).

3. The Baltic Exchange officially published the Baltic International Tanker Routes (BITR) on 20 April 1998 to reflect the overall freight rate movements in the tanker freight market. On October 2001, the BITR were divided into dirty and clean routes to form the Baltic Dirty Tanker Index (BDTI) and the Baltic Clean Tanker Index (BCTI). To differentiate between dirty and clean tanker routes, 2002 was considered the starting year for the sample.

4. CCFI is to reflect the overall freight level of China’s export container market from 10 Chinese hub ports on 14 individual shipping routes, taking 1 January 1998 as the basic period with the basic index of 1000 points. Owing to its scientific and authoritative approach, CCFI is deemed as the world second influential freight index following the Baltic Dry Bulk Freight Index and has been cited as authoritative statistics in the Shipping annals published by UNCTAD (http://en.sse.net.cn/indices/introduction_ccfi_new.jsp).

Additional information

Funding

This work was supported by the Chung-Ang University Research Scholarship grants in 2016 and in part by Korea Foundation [KF1024000-2299].