Modelling Of The Spot Freight Rate In Dry Bulk Shipping

The models of the spot freight rate are categorized into two columns: firstly under the hypothesis that spot freight rate are coherent which could be educed form historical data; secondly spot freight are determined by several factors, so it is logical to express the spot freight form them. ARIMA Model is chosen as the example of the first column; VECM is chosen as the example of the second column, and the variables are demand expressed by dry seaborne bulk, supply expressed by dry bulker fleet, shipping cost expressed by bunker price, and the commodity price, respectively. During the tests to models multicollinearity is revealed. Since the great influence of subprime mortgage crisis, it is considered into the model by a dummy variable, and the result is improved greatly.Figure is another way to express the spot freight rate except equation. In microeconomics the commodity price is determined by the point of intersection of supply and demand curve. It is the case in shipping economics too, every pair of curves determine one spot freight rate. However the figure is two-dimensional which block off more spot freight rates to be revealed in the figure. So a supply and demand drawing in which world dry bulker fleet denotes supply, world seaborne dry bulk trade denotes demand, and average Baltic Dry Bulk Indices (BDI for short) denotes spot freight is drawn in three-dimensional. And obviously it is easier to real the relationship between supply and demand in determining the spot freight than traditional two-dimensional one. The most import thing is the trend of the spot freight rate could be detected form the three-dimensional figure.Dry bulk shipping market attracts numerous shippers, carriers or even banks to invest on shipping derivatives especially on FFA because of its volatility and complexity. FFA is playing an increasing role in dry bulk shipping. The long-time equilibrium between spot freight rate and FFA, and it is the FFA that who adjusts to the spot freight rate when the short-time disequilibriums happen. FFA contracts influence the spot freight rate by leverage. It has been a trend to include FFA in the dry bulk shipping model in the new century, and this trend and main productions are stated.