Nonlinear risk dynamics and strategic Management: Insights for LNG shipping policy and practice

Abstract

Geopolitical risks (GPR) pose a critical and immediate challenge to the LNG shipping industry. This study employs nonlinear quantile causality tests and multivariate quantile-on-quantile regression to examine the coupling effects of GPR on the LNG freight and charter markets under varying market conditions. The robustness of the results is verified using multivariate quantile regression and kernel-based regularized least squares. The empirical findings reveal that GPR has significant nonlinear and asymmetric causal effects on the LNG freight and charter markets, with risks transferring from GPR to the markets. Under most normal market conditions, low-level geopolitical risks exhibit an insignificant impact on LNG spot freight market, short-term charter market, and long-term charter market. Under extreme market conditions at high quantiles, GPR significantly positively impacts all LNG freight and charter markets, with variations depending on ship types. GPR has a greater influence on small ships and the short-term charter market, indicating that larger ships and longer charter durations better mitigate geopolitical risks. The findings offer valuable insights to inform policy and management practice for shipowners and charterers.