The Relationship Between Commodity Prices and Freight Rates in the Dry Bulk Shipping Segment: A Threshold Regression Approach

Melas, K.D. and Michail, N.A., 2021. The relationship between commodity prices and freight rates in the dry bulk shipping segment: A threshold regression approach. Maritime Transport Research, 2, p.100025.

12 Pages Posted: 27 Oct 2020 Last revised: 1 Oct 2021

See all articles by Konstantinos D. Melas

Konstantinos D. Melas

Metropolitan College, Greece - Faculty of Business and Economics; University of Western Macedonia

Nektarios Michail

Cyprus University of Technology

Date Written: May 5, 2021

Abstract

In the current paper, we examine the existence of possible threshold relationships in the commodity price – freight rate nexus, under or over which the relationship between the two changes. Using the first lag of the commodity price change as the threshold variable, we find that, in the case of large drops in commodity prices relationships can strongly change. In such cases, the impact is more passed on to freight rates than under normal conditions, while the prevalence of oil prices becomes less significant. Furthermore, in such occurrences, the relationship of freight rates with their lags is statistically significant suggesting that the shock is maintained in the system for longer. Intuitively, the empirical findings suggest that as commodity prices fall sharply, the freight rate needs to adjust more dynamically to such changes in order to maintain a more or less constant ratio of the transport cost to the end price of the commodity. As such, it appears that a change in the previous relationship between the two is warranted for this to happen. Finally, the results are also supportive of the existence of a lead-lag relationship between commodity prices and freight rates, in the large drop regime, in accordance with the literature.

Keywords: commodities, dry bulk, shipping freight rates, threshold regression

JEL Classification: G11, G12, G13, G20

Suggested Citation

Melas, Konstantinos and Michail, Nektarios, The Relationship Between Commodity Prices and Freight Rates in the Dry Bulk Shipping Segment: A Threshold Regression Approach (May 5, 2021). Melas, K.D. and Michail, N.A., 2021. The relationship between commodity prices and freight rates in the dry bulk shipping segment: A threshold regression approach. Maritime Transport Research, 2, p.100025., Available at SSRN: https://ssrn.com/abstract=3581592 or http://dx.doi.org/10.2139/ssrn.3581592

Konstantinos Melas (Contact Author)

Metropolitan College, Greece - Faculty of Business and Economics ( email )

74, Sorou St.
Maroussi, 15125
Greece

University of Western Macedonia ( email )

Kozani
Kozani
Greece

Nektarios Michail

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
83
Abstract Views
513
Rank
444,136
PlumX Metrics