A Classical Partial Disequilibrium Model of the Gas Shipping Markets

Abstract

In this paper we present a classical shipping model of the LPG, the ammonia and the petrochemical freight market that has recently been developed for use in industry practice. The aim is on the one hand to fill the gap of modeling the gas markets which to date have basically been ignored in the maritime literature. By innovating demand and productivity, as well as proposing supply with straightforward entry and exit on the other, we overcome the need of a flexible framework that in turn is applicable on modeling other shipping markets. Although this cumbersome exercise requires a considerable amount of information, the benefit of a model based on economic theory is that one can directly test the assumption of market equilibrium at the same time that it could effectively be used by the industry. By so doing, we confirm the positive albeit diffused relation between market utilization levels and freight rates, expounding that market information is instantaneously reflected in prices. A forecasting application of the model and a sensitivity example on some key variables conclude the analysis.

Keywords: freight model, LPG shipping, disequilibrium

JEL Classification: C32, C63, D5