A risk assessment model with systematical uncertainty treatment for container shipping operations

ABSTRACT

The substantial adverse effects of risk factors on container shipping and logistics promoted a deep integration of risk analysis into the decision-making process. This paper aims to develop a well-grounded quantitative model to operational risk in a container shipping context. Considering uncertainty as a primary component of the risk concept, methods were employed in an inter-complementary manner to enable not only a sense of foreseeability but also a deeper look into the weaknesses of the knowledge base. The intersubjectivity of the input extraction process was supported by the Evidential Reasoning (ER) algorithm. Risks are then assessed based on a Fuzzy Rules Bayesian Network (FRBN) model with a 2-level parameter structure before meaningful interpretations can be derived through a new risk mapping approach. Besides an illustrative case study, the model was tested by sensitivity analysis and an examination of multiple validity claims.     

Crucial factors influencing international logistics operations for African landlocked countries – A case study of Burkina Faso

ABSTRACT

This study aims to evaluate the crucial factors influencing international logistics operations for African landlocked countries. To this end, a case study and a questionnaire survey were conducted. A total of 147 usable responses from container shipping firms were obtained as a result of the questionnaire survey. The results of factor analysis revealed that transportation capability, external risks, information integration, logistics infrastructure, local agents’ logistics capability, and national law and policy were crucial factors influencing the logistics operations of African landlocked countries. Specifically, local agents’ logistics capability was perceived by respondents to be the most important factor. Moreover, the results of the study also indicated that the highest factor mean values of small shipping companies were related to transportation capability, external risks and the local agents’ logistics capability, whereas container shipping companies that arranged trucks for inland transportation paid more attention to the external risks, logistics infrastructure, the local agents’ logistics capability, and national law and policy.     

A cause of oversupply and failure in the shipping market: measuring herding behavior effects

ABSTRACT

The shipping market is volatile. In general, the shipping market cycle shows four stages, through—recovery—peak—collapse, while a upward trend lasts for 7~8 years and a downward trend for another 7~8 years. So the market’s bubble is not sustainable but always ends in a recessionary trend. The economic cycle is common knowledge and an axiom of the shipping industry, but many ship-owners take no account of it. Previous study stated that ship-owners’ fears, triggered by a violently changeable market, make them mimic the crowd mind or herd mentality, following market sentiment. This study aims to measure the effects of herding behavior (HB), triggered by market sentiment, on the shipping market. We attempt to address two research questions: (1) How does HB arise, and what course does it follow? (2) How many vessels (or how many tons) were purchased under the influence of HB? We estimate that 50.5% (227.8 vessels) of the total vessels or 30.4% (3,670.2 tons) of the total tonnage were purchased under the influence of HB. Looking at international finance, we found that ship investment HB is a very strong factor of the recent shipping market, at least in Korea.     

Lessons from bankruptcy of Hanjin Shipping Company in chartering

This paper aims to analyze the charter contract management of major container shipping companies in response to fluctuations in shipping market conditions in terms of contract duration using data of containerships between 2010 and 2016. Duration analysis was conducted to examine the relationship between charter duration and shipping market conditions. Moreover, this paper explores the causes of Hanjin Shipping Company’s bankruptcy, drawing managerial implications. Test results from Cox PH (Proportional Hazard) model show that most container shipping companies in Europe having net earnings purchased large vessels instead of chartering vessels, while some ocean carriers featuring poor financial performance, in particular the Hanjin Shipping Company, chartered bigger ships with higher charter rates and longer duration. Contract charter rates and duration of Hanjin Shipping Company featured greater risk compared to competitors.     

Duration analysis for recurrent ship accidents

About 63% of the world’s shipping accidents are recurrent—they occur to ships that have already experienced at least one prior accident. Therefore, reducing recurrent accidents can contribute significantly to maritime safety. We study the factors affecting both first and recurrent accidents, by focusing on the duration between two accidents. Cox proportional hazard models are applied to ship accident data from 1996 to 2015, and the results identify which ships have a high risk of recurrent accidents, based on ship attributes, ship supply and market conditions, shipbuilding country, previous accident type, and ship type. The recurrent rate is high when the ship involved in the accident is old, small, flies a flag of convenience, and has no detention record. In addition, the accident risk increases when the shipping market faces a high bunker price, overcapacity in supply, a high time charter rate, or low newbuilding price. On the other hand, ships built in China and Japan have lower recurrent accident rates than those built elsewhere, although ships built in China have earlier first accidents than do others. General cargo ships have the highest recurrent accident rate, followed by dry bulkers, container ships, and tankers, in that order.     

Connectivity analysis of the global shipping network by eigenvalue decomposition

ABSTRACT

Maritime shipping necessitates flexible and cost-effective port access worldwide through the global shipping network. This paper presents an efficient method to identify major port communities, and analyses the network connectivity of the global shipping network based on community structure. The global shipping network is represented by a signless Laplacian matrix which can be decomposed to generate its eigenvectors and corresponding eigenvalues. The largest gaps between the eigenvalues were then used to determine the optimal number of communities within the network. The eigenvalue decomposition method offers the advantage of detecting port communities without relying on a priori assumption about the number of communities and the size of each community. By applying this method to a dataset collected from seven world leading liner shipping companies, we found that the ports are clustered into three communities in the global container shipping network, which is consistent with the major container trade routes. The sparse linkages between port communities indicate where access is relatively poor.     

Methodology for ro-ro ship and fleet sizing with application to short sea shipping

A novel methodology is developed for determining the characteristics of a cargo roll-on/roll-off (ro-ro) ship and the fleet size required for a given short sea shipping route. The ship and required fleet size to satisfy the transportation demand (for each pair of speed and freight rate) are determined using a database of existing cargo ro-ro ships to obtain the main technical characteristics of the most suitable ship. The time charter, voyage costs and revenue are then calculated considering the technical characteristics of each ship. Fuel costs are corrected for the actual ship speed and loading condition. A number of restrictions in the transportation problem are considered leading to the exclusion of unfeasible solutions. The maximum profit over the period of a year is identified among the feasible pairs of speed and freight rate. This general methodology is applied in a case study that considers the route between Leixões (Portugal) and Rotterdam (Netherlands). The study allows the identification of the most suitable ship and fleet sizes for different market penetration levels and quantifies the impact on shipping company profit of changes in parameters such as fuel costs, time charter costs, emission control area, installed propulsion power and stacking factor.     

Assessment of investment decision in the dry bulk shipping market based on real options thinking and the shipping cycle perspective

As the dry bulk shipping market seems to have been stuck in a trough period for a long time, investors need to pay more attention to their investment strategies to survive during this period. This study aimed to find a suitable model to assess dry bulk ship investment decisions in the tough and peak periods based on real options theories. Two options, involving an abandonment option and a deferrable option, were used to define investors’ responses to the uncertainty in investment processes such as stopping or selling vessels. The option valuation was solved by using a binomial valuation model, due to data limitations. In accordance with shipping cycle theories, different volatility parameters for the tough and peak periods were calculated using a generalized autoregressive conditional heteroskedasticity (GARCH) model. The application of the real options model to a case study involving secondhand ship trading indicated its viability. According to the results of the case study, the new model has advantages over the traditional net present value (NPV) method in uncertain investment environments. Thus, the results demonstrate that the real options model is a more suitable method for use in the current dry bulk shipping market.     

Reposition of empty containers of different life stages integrated with liner shipping network design

ABSTRACT

This paper integrates empty container reposition with container shipping network design considering the container life stages. A mixed-integer linear programming model is built to determine the liner shipping network, the initial launch ports of new containers, the ports for scrapping obsolete containers, the empty container reposition scheme and the containers of different life stages being used for a specific voyage. A case study is done by taking liner shipping among China, Japan and South Korea, Southeast Asia, Europe and the US as an example. The results show that over 93% of new containers are put into use in China while 63% of old containers are scrapped in Europe or the US, and 73% of containers used for packing cargoes from China to the US are those at the Decline Stage or the Exit Stage.     

An analysis of the pricing system in the Greek–Italian coastal routes

Price discrimination is practiced by oligopolistic coastal shipping companies in the ‘unregulated’ Greece–Italy routes in the year 2002. Investigation has been carried out ‘per route’—in a doctoral thesis—instead of ‘per market’ which was the so-far erroneous approach of shipping economists. This is so for a host of differentiating factors play a considerable and non-negligible role (like geography, distance, demand, seasonality and others). Service—and price-discrimination—in coastal shipping is affected also by the predetermined ship design which thus is a special feature—but not exclusively—in coastal shipping. Companies in the Adriatic Sea try to extract the greater possible value of the user's willingness to pay, peak and off-peak, group and ungrouped, for social groups (clubs, families and students). Marketing and economics interfere in a complicated—far from the nice world of theory—situation, where maximization of revenue and profit, capacity utilization, intense seasonality and high fixed cost (common and joint costs as well) are a few of the factors that interplay. This paper can be considered as a case study for applied pricing. Excess capacity is also a strategic factor affecting pricing. It is our opinion that the analysis here gives for the first time a complete theoretical and practical account—based on the price lists of the companies—of the pricing policy of the ferry boats running in the Adriatic Sea belonging to coastal shipping companies connecting Italy with Greece and Greece with the European Union (EU). We believe this work to be useful for maritime Europe.     

Evaluation of risk attitude in the shipping freight market under uncertainty

ABSTRACT

The main purpose of this study is to examine how market participants take risks, in other words, what their risk attitude/preference is, and how their risk attitude could be related to the shipping freight and other markets. To address them, we calibrated the risk attitude of participants in shipping freight markets from 2007 to 2013, and provided an example of the application of risk attitude. For market participants, risk attitude/preference has an important role in understanding shipping freight markets and managing risks under uncertainty. However, risk attitude is not directly observable. To achieve this, we applied a framework that consists of structural model and calibration with market data. We interpreted risk attitude and confirmed that a structural break occurred around 2008 for the calibrated risk attitude parameter. The average risk attitude of market participants tended to be more risk-averse after 2010. We conducted an additional analysis to provide an example of the application of calibrated risk attitude, using structural equation modeling to calculate a latent variable that reflected other commodity markets. We compared the risk attitude parameter and the latent variable, and clarified the relationship between the risk attitude parameter and commodity markets.     

Cost analysis of bulk cargo containerization

ABSTRACT

Bulk cargo containerization (BCC) involves changes in the transportation mode of container shipping for cargo that uses bulk carriers without packing. This topic has recently attracted considerable attention as an alternative transportation method for container cargo. BCC is advantageous because it can address imbalances in the amount of cargo conveyed between the main and back hauls, thereby improving efficiency. A previous survey among companies involved in cargo shipping revealed that in addition to ocean freight, vanning and devanning, and customs clearance costs, consignees’ decisions were the key factor in selecting transport modes. The present study aims to clarify the cost competitiveness of container shipping and identify cost reductions that may increase the use of BCC. To quantitatively check the results of the survey employed in this study, we constructed a model based on consignees’ and container shipping companies’ costs to determine the choice of transport mode for back-haul trade, then examined the incentives for consignees and shipping companies. We found that BCC can be realized by cost reduction on the part of the consignee and profit improvement on the part of the container shipping company for some routes and goods. Although reducing the freight rate would effectively promote BCC, reducing other costs would not have the same effect.     

Slow steaming of liner trade: its economic and environmental impacts

From 2000s, there have been three forces provoking slow steaming practice in the liner industry: (1) oversupply of shipping capacity, (2) increase of bunker price and (3) environmental pressure. This paper analyses the background and the recent application of slow steaming in liner shipping. The research looks into the questions of how slow steaming can save bunker consumption and bring benefits to the environment. On the other hand, solutions are also examined to the adverse side of slow steaming practice, i.e., how it affects the container transit time. For which, a cost model is developed to demonstrate the impact of slow steaming on the revenue change, with application to the North Europe—Far East Trade as a case study. The final result shows that the optimal speed for the shipowner is correlated with the designed speed, bunker price and the price of CO₂. With the increase of the bunker price and the price of CO_2, the optimal speed will also increase, which means that slow steaming practice has a positive impact on the environmental protection.     

The value of options for time charterparty extension: an artificial neural networks (ANN) approach

The most frequently associated options in the physical shipping market are options to extend the charter period on time charters and additional shipment options on contracts of affreightment. The value of freight options, in practice, is estimated mostly by referring to forward curves. An option on freight has different properties from its financial counterparts, and the straightforward adoption of theoretical models does not produce promising results. In this paper, extension options, which have the property of options on futures, were transformed into regular European options before the application of the Black-Scholes model (BSM). The efficient market hypothesis, which justifies the parity of the performance of a long-term charter to that of repetitive short-term charters, worked as the basis for the transformation. The option values determined by the BSM were compared with actual realized values. Additionally, the artificial neural networks (ANN) was employed to derive the option values. This study is meaningful as the first-time application of both the closed-form solution and the ANN to the valuation of physical freight options. The research results can contribute to the quality of chartering decisions. The results could also be used in quantifying credit risk, as extension options tend to be granted to charterers with more creditability.     

Transshipment hub port selection for shipping carriers in a dual hub-port system

ABSTRACT

This paper investigates the factors affecting transshipment (T/S) hub port selection by a feeder port and helps shipping carriers make a decision about T/S hub port selection in a dual hub-port system. By employing established evaluation factors, a case study is conducted to weigh the priority of factors and to select an alternative T/S hub port, such as between the Shanghai and Ningbo ports from the Nanjing feeder port in the Yangtze River delta (YRD). A combined multi-criteria decision-making (MCDM) framework utilizing the analytic hierarchy process (AHP) and the consistent fuzzy preference relations (CFPR) method is employed to both reduce the number of pairwise comparisons by AHP and to obtain experts’ knowledge in the decision-making process. The result indicates that the cost, availability of hub port’s space allocation, and the connectivity between feeder port and hub port are crucial factors for T/S hub port selection by shipping carriers. In the case study, Shanghai is selected as the T/S hub port from the Nanjing feeder port. Nevertheless, Ningbo port has the advantage of cost, and if the relationship with feeder port can be improved, Ningbo port would be preferred over Shanghai as a T/S hub port for shipping carriers in a dual hub-port system.     

Enhancing the competitiveness of Korea’s container shipping industry through structural improvements

ABSTRACT

After the collapse of Hanjin Shipping in 2016, Korea faced the task of reconstructing its container shipping industry by enhancing the competitiveness of its shipping companies in a rapidly evolving market environment. Responding to this need for policy design, this study first attempts to understand the industry based on the shipping ecosystem, which comprises the following four areas: shipping finance, collection of cargo, acquisition of ships, and partnership among carriers. Second, it lists the structural problems, along with the remedial policy alternatives, that were identified after conducting in-depth interviews with industry experts, which included mid-level managers. Third, it conducts an importance-performance analysis to classify problems according to their importance and performance, followed by an analytic hierarchy process analysis to define the priorities of policy alternatives. Finally, drawing on the empirical results, the paper concludes with suggestions on an integrated policy package for the container shipping industry.     

Valuation mismatch and shipping q indicator for shipping asset management

ABSTRACT

This paper aims to develop an adaptation of the Tobin Q investment model for the shipping asset management in order to monitor valuation mismatch and bubble pricing of shipping assets. In this circumstance, the market prices of various shipping assets (e.g., Capesize or Panamax dry bulk carriers in different age profiles) are compared to the measured long-term asset value with second-hand ship prices. The mark-to-market prices of shipping assets are led by current market trends and freight rates, while the long-term asset value is estimated by using past data under certain assumptions (mean reversion, trend reversion). The discrepancy between market prices and the long-term nominal value of a shipping asset reflects any mispricing, which in turn sheds light on investment timing and market entry-exit decision.     

Development of early warning index in Korean shipping industry by using signal approach

ABSTRACT

The study aims to investigate and prevent shipping companies’ insolvency that can be derived from depressed market sentiment in the shipping industry. For this purpose, the paper focuses on developing an early warning index. The main factors that contribute to the change in the shipping industry are derived. Sixty independent variables were accounted in the development of early warning index, some of which are shipping, shipbuilding, and finance. Suggestions drew from the result of early warning index are described as below. Firstly, the results of a signal approach towards independent variables showed lowest the signal error value in newbuilding price of containership, bunker price, Commodity Research Bureau (CRB) commodity index, and order book of bulkship. These indicators have proven to be a high level of variation factor during shipping markets’ crisis. Secondly, the early warning index confirmed that it preceded by 6 months compared to probability of default. Thirdly, in order to validate the accuracy of the early warning index, the adequacy of the model was tested using a mean square error and time lag correlations. As a result of the verification, value proved to be at a high level of compliance at 0.097.     

Benefit segmentation of the container shipping market in Turkey

ABSTRACT

Marketing policies have gained more importance in container shipping as the industry experiences challenges arising from commoditization. Market segmentation is fundamental to marketing policies, yet it needs a detailed analysis in container shipping. Accordingly, this paper aims to explore homogenous customer groups in container shipping by conducting a segmentation analysis, which can help container lines apply more efficient marketing policies. A survey study is conducted on 356 shippers in Turkey. The study develops five reliable and valid selection criteria factors and applies cluster analysis based on the selection criteria factors. The cluster analysis produces a total of six benefit segments which are differentiable. The segments are significantly identified by the demographic characteristics of shippers. The paper suggests several implications for the marketing policies of container lines.     

Are there bubbles in the shipping freight market?

ABSTRACT

This paper addresses the reconsideration of price bubbles specific to the shipping freight market based on the method of the Generalized Supremum Augmented Dickey–Fuller (GSADF). This approach offers the opportunity to recognize multiple bubbles and set their corresponding original and final dates. Empirical results reveal that four bubbles existed in the shipping freight market between October 1988 and February 2018 in which freight deviated from fundamental values. Strong demand (especially in China), the supply capacity, crude oil prices and U.S. dollar fluctuations are potential explanations for the first three bubbles. The global financial crisis that burst in 2008 is the major factor results in the last bubble. Hence, we must distinguish the potential reasons of bubbles in different periods and take measures such as promoting economic multipolarization, strengthening the bargaining power of China, building an effective information transfer system, employing financial derivatives and accelerating the consolidation of the shipping industry to alleviate the negative influences on global seaborne trade.