Vessel and voyage determinants of tanker freight rates and contract times: Fid-Bau Portal

Vessel and voyage determinants of tanker freight rates and contract times

Alizadeh, Amir H. / Talley, Wayne K.

Abstract The behavior of shipping freight (charter) rates and the timing of shipping contracts affect the transportation costs of charterers and the operating cash flows of shipowners. Although the literature has established macroeconomic determinants of shipping freight rates, there has been no systematic investigation of microeconomic determinants of freight rates and the delivery time of chartered ships (the laycan period) in the tanker market. Therefore, the aim of this paper is to investigate the importance of vessel and contract specific factors in the determination of tanker freight rates and laycan periods in shipping contracts. Individual tanker shipping contracts from January 2006 to March 2009 are used to estimate freight rates and laycan periods using a system of simultaneous equations. The estimation results suggest that the duration of the laycan period is an important determinant of the shipping freight rate and vice versa. Other determinants of freight rates include the vessel's hull type, fixture deadweight utilization ratio, vessel age, and voyage routes. Determinants of the laycan period include the former determinants as well as the Baltic Dirty Tanker Index and its volatility.

Research highlights ► Freight rates of single-hull tankers are at a discount versus those for double-hull tankers. ► Tanker freight rates are positively related to the length of the laycan period. ► A simultaneous equation relationship exists between tanker freight rates and the length of laycan periods. ► Tanker freight rates and laycan periods vary across shipping routes. ► Laycan periods of tanker freight contracts vary indirectly with freight rate volatility.