Investment incentive analysis for second-hand vessels: Fid-Bau Portal

Investment incentive analysis for second-hand vessels

Fan, Lixian / Gu, Bingmei / Yin, Jingbo

Abstract The investment decision on second-hand vessels is a critical strategy in capacity management for shipping companies. Unlike the newbuilding and demolition markets, where newbuilding or demolition activities can influence the actual fleet in the shipping industry, transactions in the sales and purchases market only affect the capacity of related companies. Investment in second-hand vessels has been a critical approach to obtaining sustainable growth and company competitiveness in a competitive market environment. However, few studies have analyzed the investment incentives of second-hand vessels. This study fills the research gap with an empirical analysis of the investment decisions of individual buyers. This study uses a unique dataset of 6,806 transactions for second-hand vessels over the last 15-year period (January 2005 to July 2019) in the bulk and container markets. As the investment decision variable is a discrete variable and a vessel can be sold multiple times, we employ the Cox Proportional Hazards model taking various time-invariant and time-variant variables into consideration. To the best of our knowledge, this is the first study to use the survival analysis model to explore investment in second-hand vessels. The estimated result of this study suggests that investment decisions for bulk and container vessels are different, but are both driven by market conditions, maintaining market shares, and competitors’ capacity expansion. The detailed discussion of various types of vessels and shipping companies could provide valuable insights on the investments of shipping companies and stakeholders.

Highlights • The study examines the impacts of various factors on shipowners' investment inventive of second-hand vessels. • The Cox proportional hazards regression model is adopted to incorporate both time-invariant and time-variant factors. • The investment incentives of second-hand vessels in the bulk and container market are compared. • Stepwise regressions are employed in the survival analysis model to overcome multicollinearity issues.