This paper compares volatility estimates between time-charter and spot rates between different sizes of dry bulk vessels. Time-charters are more volatile than spot rates, and small vessels are less risky than larger ones when spot rates are used. Ship owners who are risk averse should utilise the spot market in preference to time-charters, and invest in smaller vessels.
Topic: 13.3 Shipping
There are economies of trade density in liner shipping, but they are not enough to preclude social optimal pricing. trade density has hardly any effect on freight rates.
Unit values of commodities and the stowage factor are the chief determinants of freight rates on conference lines serving Thailand, Singapore and Israel. The “freight ton” is misconceived as a measure of costs and of the volume of trade: rating by volume should be applied consistently.
Conference schedules of freight rates differentiate between commodities, so that some are uneconomic and there is wasteful service competition for high-rated items, leading to excess capacity. The author advocates a radical change in the rate structure.
Freight rates charged by conferences and monopoly liners vary with unit values and also with bulk. Variations for distance, stowage, quantity shipped and competition show less consistency.
This article argues that carriers have every incentive to co-operate voluntarily in the provision of coordinated services where these are more efficient than service by a single mode. The largest profits flow from the most efficient services. But there must be efficient pricing and shippers must respond rationally.
An analysis of shipowners’ behaviour as members of a liner conference leads Dr. Abrahamsson to conclude that the price-setting practices of conferences result not only from rising costs and price maximisation but from monopoly power and compensatory increases for “losses” incurred by selling surplus capacity below average cost in the tramp market.