Lixian Fan

Slow steaming of liner trade: its economic and environmental impacts

From 2000s, there have been three forces provoking slow steaming practice in the liner industry: (1) oversupply of shipping capacity, (2) increase of bunker price and (3) environmental pressure. This paper analyses the background and the recent application of slow steaming in liner shipping. The research looks into the questions of how slow steaming can save bunker consumption and bring benefits to the environment. On the other hand, solutions are also examined to the adverse side of slow steaming practice, i.e., how it affects the container transit time. For which, a cost model is developed to demonstrate the impact of slow steaming on the revenue change, with application to the North Europe—Far East Trade as a case study. The final result shows that the optimal speed for the shipowner is correlated with the designed speed, bunker price and the price of CO2. With the increase of the bunker price and the price of CO2, the optimal speed will also increase, which means that slow steaming practice has a positive impact on the environmental protection.

An econometric analysis for container shipping market

This article presents an econometric analysis for the fluctuation of the container freight rate due to the interactions between the demand for container transportation services and the container fleet capacity. The demand is derived from international trade and is assumed to be exogenous, while the fleet capacity increases with new orders made two years before, proportional to the industrial profit. Assuming the market clears each year, the shipping freight rate will change with the relative magnitude of shifts in the demand and fleet capacity. This model is estimated using the world container shipping market statistics from 1980 to 2008, applying the three-stage least square method. The estimated parameters of the model have high statistical significance, and the overall explanatory power of the model is above 90%. The short-term in-sample prediction of the model can largely replicate the container shipping market fluctuation in terms of the fleet size dynamics and the freight rate fluctuation in the past 20 years. The prediction of the future market trend reveals that the container freight rate should continue to decrease in the coming three years if the demand for container transportation services grows at less than 8%.

Dynamics and Interactions between Spot and Forward Freights in the Dry Bulk Shipping Market

ABSTRACT Analyzing the interactions between spot and forward freight agreement (FFA) prices in the dry bulk shipping is important as they play a significant role for shipping companies to secure their profits and avoid potential risks in the volatile market. By applying the vector autoregression (VAR) and the vector error correction model (VECM), this paper identifies the long-run and mutual causal relationship between the spot and FFA prices on the BPI T/C and BCI C7 routes. Along with these cointegrating rates, exogenous factors such as the market demand and supply and some economic indices are also recognized as contributing variables for the dynamic movement of the spot and FFA prices. Importantly, the mean-reverting process is justified on both routes with different mechanisms. When the spot and FFA prices deviate from their equilibrium level in the short run, they will be adjusted to their long-run equilibrium more directly and clearly on the BPI T/C route than those on the BCI C7 route. It also indicates that this adjusting power has direction and size asymmetries on both routes. In addition, the impulse analysis indicates that the spot rate is more volatile than its corresponding FFA prices confronting innovations. The results of this study provide a reference to the participants in the dry bulk shipping market on the causes of fluctuation in spot and FFA prices and their interactions, which can be used to promote the risk management in the market.

Analyzing ship investment behaviour in liner shipping

This study analyzes capacity expansion and ship choice decisions. Theoretically, we derive the probability of capacity expansion as a function of market and company attributes and characterize the impacts of these factors on expansion decisions. Empirically, we analyze ship investment and ship choice behaviour using binary choice and nested logit models based on ship investment data from major liner shipping companies over the period 1999 to 2009. Most expansion decisions are found to be market-driven, and large companies expand to maintain their market shares. In terms of ship selection, statistical results support the assumption that shipping companies decide on a new order or second-hand purchase before considering the ship size. Also, new orders are preferable to second-hand purchases. For new orders, the preference increases with ship size, and decreases with shipbuilding length and demand growth rate. For all ship types, the preference increases with a high and stable time-charter rate. For second-hand ships, handysize is the most preferable size. The substitution of new orders and second-hand purchases is possible, but not symmetrical.

Flag choice behaviour in the world merchant fleet

Flag selection is not just a crucial decision with regard to ship operation, but also plays an important role in national and international maritime policy. This study uses individual ship registration data to analyse flag selection behaviour, including flagging out decision using a binary choice model, and final flag choice by applying a nested logit model. Operators from traditional maritime countries are found to flag out high-quality vessels, whereas those from open-registry countries tend to flag out low-quality ones. Flag preferences are more sensitive to the registration fee than to the annual due; full-open flags are more elastic than quasi-open ones and substitution among flags within the same group is higher than across different groups. Port State Control, Flag State Control and safety records have opposite impacts on flag choice for ships from closed registry countries and those from open registers.

Pricing joint products in liner shipping

Fronthaul and backhaul shipping trips share the same round-trip voyage costs. The pricing strategies for the two trips are critical to the performance of liner operators, as well as the trade volume. This paper analyses the pricing strategies for the two trips in liner shipping based on different levels of demand imbalance. The critical condition is found when demand imbalance causes trade imbalance, and the optimal pricing strategies and the relationship between fronthaul and backhaul prices in both balanced trade and imbalanced trade are identified. Using the properties derived from theoretical analysis and employing Johansens vector error correction model, the relationships between fronthaul and backhaul container freight rates for the Trans-Pacific, Trans-Atlantic and Euro-Asia routes were tested, and the critical trade imbalance ratios that disintegrate the freight rates for both directions were identified.