Newbuilding orders and freight rate shocks: Evidence from the containership market

25 Pages Posted: 3 Jun 2021

See all articles by Nektarios Michail

Nektarios Michail

Cyprus University of Technology

Konstantinos D. Melas

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

Date Written: June 2, 2021

Abstract

This paper studies the behaviour of shipping investors following an unexpected shock in the freight rates, while accounting for costs (fuel), and the macro environment (stock prices and trade). The estimates firstly confirm the existence of a long-term relationship between the macroeconomic environment and freight rates, as well as between that and newbuilding orders. Most importantly, we find that when the source of the shock is less clear but still causes an increase in freight rates, shipping investors respond with a delay, which could last almost a year. The thinking behind this “inaction period” is rational, given that the only way to observe whether a shock is permanent or transitory is to wait it out. The above findings have important policy implications not only for shipping investors but also for countries that rely heavily on their ship-building industries.

Keywords: shipping markets, containerships, impulse responses

JEL Classification: G11, G12, G13, G20

Suggested Citation

Michail, Nektarios and Melas, Konstantinos, Newbuilding orders and freight rate shocks: Evidence from the containership market (June 2, 2021). Available at SSRN: https://ssrn.com/abstract=3858521 or http://dx.doi.org/10.2139/ssrn.3858521

Nektarios Michail

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

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

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