Effect of risk preference on the valuation of time charter contracts with extension options

ABSTRACT

The literature on valuation of time charter contracts and real options in shipping generally relies on the complete markets hypothesis and the risk-neutrality of agents. However, these assumptions fail completely in some shipping market segments. This study proposes a numerical approach—based on discounting the certainty equivalent payoff at the risk-free rate—which incorporates the agent’s risk preferences through an exponential utility function. The method comprises an iterative Monte Carlo nested simulation with the real probability measure. This method is applied to a case of Suezmax tankers. The stochastic evolution of the time charter rates is modelled as a geometric mean-reverting process. The case study supports the applicability of the proposed method and evidences that the effect of risk preference may be significant, mainly for more risk-averse agents. Although the method involves intensive computation, it has the benefits of theoretical ease and flexibility, which could encourage utilisation by practitioners.     

A Strategic Diagnostic Tool Applied to Iberian Seaports: An Evolutionary Perspective

The highly competitive and rapidly changing environment faced by businesses has greatly increased the need for strategic planning. The importance of formulating strategies to reach competitive advantages with implications in the performance is becoming increasingly evident in the seaport context. Thus, it is relevant and appropriate to apply strategic positioning tools to seaports given the role of competitive strategies in the growth and development of this industry. This research aims to analyse the strategic positioning of the leading Iberian Peninsula seaports (Portuguese and Spanish seaports) using the Boston Consulting Group (BCG) matrix as a strategic tool in an evolutionary perspective. The portfolio analysis developed subsequently focuses on the annual data of eight seaports in a selected period of 18 years (1992–2009) and on five categories of traffic: liquid bulk (LB), dry bulk (DB), containers (CO), ro-ro (roll-on/roll-off) and conventional cargo (CC). This research allows us to compare and analyse different levels of performance and identify which of the seaports have improved their strategic positioning during the considered period. The findings reveal a better positioning of Spanish seaports in relation to total traffic and that most of the seaports in the BCG matrix had changed from the first to the third period. The seaport of Valencia is the only one that has maintained its Star Performer position in all the 18 years analysed. Furthermore, considering container traffic, the results evidence the seaports of Algeciras, Valencia and Barcelona as having attained a remarkable position of leadership.     

An analysis of the Brazilian ship financing system

The Brazilian ship financing system has some unique features. The funds made available to finance the construction and acquisition of ships are sourced from a tax on import and cabotage freight, payable by the shippers. For Brazilian flagged ships, a portion of the tax generated can be used for the payment of loan instalments. This paper analyses the impact of the tax on the economy as a whole, and discusses the distribution of the tax burden between the shipowner and the shipper, taking into account the maritime transport demand elasticities in Brazil. The paper also analyses the effectiveness of the financing system in reducing the capital cost to shipowner, and the distortion effects produced by the utilization of the tax in loan repayments. The conclusion is that there are important distortions that may threaten the recovery of the maritime industry in Brazil.     

Logistics resources in seaport performance: multi-criteria analysis

Studying the logistics resource relationship within the framework of the overall performance of the main Iberian seaports performance, this article discusses how to apply the linear additive multi-criteria analysis (MCA) model and principal component analysis (PCA) to such an industry. The model incorporates the contribution of two different performance indicators—operational performance and physical capacity—measured by several indicators. First, we gather the 2009 annual data on the total cargo throughput of 16 seaport container terminals. The PCA method is then applied to attain the loading factor of each indicator and to normalize the redundancy in indicators and thereby generate meaningful results. We correspondingly find (a) operational performance contributed 48.77% while the physical capacity contributed 51.23% to overall performance; (b) the majority of seaports reveal a direct proportionality between their positioning in terms of physical capacity and their overall performance positioning; (c) this relationship changes whenever the difference in indicator value proves significant; and hence (d) this model demonstrates both its applicability and reliability in the case of the Iberian seaport industry and the relevance of encouraging multiple decision-makers to carefully consider identifying key criteria out of a given set of alternatives.     

Establishing performance targets for shipbuilding policies

Shipbuilding is the subject of public policies in a number of countries, as it is considered a strategic industry and has an impact on employment levels in many regions. Establishing performance targets can be a challenge to shipbuilding policy makers. This paper suggests an approach to this problem, based on the Data Envelopment Analysis (DEA) technique. This approach makes it feasible to estimate productivity and building time potential, taking into account the output pattern, technological level and quality of the industrial environment of the country or region. The methodology is applied to the analysis of the competitive potential of some Brazilian shipyard models. The benchmarking analysis was carried out for a sample of shipyards from the world's principal shipbuilding blocks.