CHAPTER 8 Freight Markets and Products
Manolis G. Kavussanos, Ilias D. Visvikis and Dimitris N. Dimitrakopoulos
8.1 INTRODUCTION
The market agents operating in the international shipping market face substantial business risks due to the high volatility, cyclicality and seasonality in rates and prices. These risks may be classified broadly into the following categories: business risk, credit risk, technical risk and financial risk. The purpose of this chapter is to outline the major business and financial risks that principals (ship owners and charterers) in the various sectors of the shipping industry are facing and highlight the modern methods and products that are currently available for efficient risk management in shipping.
The chapter starts with an overview of the shipping industry in terms of market segmentation (dry bulk, tanker and container ship), the different types of cargo transported under the different trading freight routes and the supply and demand economics of each subsector. The empirical regularities in the freight markets are then presented as: (a) seasonality is distinct between different submarkets, between contracts of different duration and between different market conditions prevailing in shipping markets; (b) freight rates of larger vessels are more volatile and bear higher relative risks compared with smaller vessels; and (c) freight contracts of longer duration are less volatile compared with shorter period contracts.
These regularities point to ...
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