Exploring spillover effects in the four shipping markets: Theory and empirical evidence from bulk shipping

Abstract

This paper aims at assessing the extent of connectedness (integration) across the four shipping markets (freight, secondhand vessels, newbuilding, and scrap) for three different segments of the industry (bulkers, oil tankers, and LNG vessels). We use monthly data for the period 1990 to 2023. The innovation of our study is that we examine the asymmetric connectedness of the shipping markets following Stopford's (2009)integration theory. We find strong patterns of asymmetric connectedness across the four markets, with the spillover effects being higher at the tails of the conditional distribution. At the macroeconomic level, our dynamic analysis provides evidence that integration is strongly affected by spillover effects arising from the pandemic, the war in Ukraine and the related government interventions to counterbalance the adverse implications for economies globally. From a market level perspective, we corroborate prior literature, finding that the freight market is overall the strongest net spills provider and consequently the dominant one. However, we also find that the secondhand market, especially in the LNG segment, acts partially as a leading market, due to the current geopolitical events that have strengthened the Risky Asset Pricing (RAP) model (shipping paradox). Our findings contribute to the decision-making process in both ship and asset management, revealing a proactive, risk-seeking behavior on the part of shipowners in the secondhand market vis à vis a more conservative behavior in the newbuilding market, which appears to be a lagging indicator of both the freight and secondhand markets.