The fluctuation of freight rates revenue and the fierce volatility of oil cost are two of the most key risk exposures in the shipping industry. However, neglecting the dynamic interrelationship between the cost and the revenue markets leads to the overestimation or underestimation of hedging ratios, which makes the present single hedge strategy less efficient. This paper proposes an optimal combination hedging model for a shipowner trading the derivatives of crude oil and dry bulk freight rates simultaneously with the cross-market economic linkages. We investigate the impacts of spillover transmission, structural breaks, and dynamic conditional correlations (DCCs) on the optimal combination hedging trading. It is found that the significant volatility transmission between oil future and dry bulk forward freight agreements suggests a high dependence of the Capesize sector on the oil fluctuations, which means that the dynamic cross-market interactions have significant impacts on the aggregate risk exposures. Furthermore, the DCCs incorporating structural breaks significantly improve the performance of the combination hedge, which is superior to the two separate hedging strategies. Our study offers new insights into how the freight rates and oil markets relate to a combination hedging, which can be used to promote the risk management in the market.

The urgent imperative for maritime decarbonization has driven shipowners to embrace alternative marine fuels. Using a robust orderbook dataset spanning from January 2020 to July 2023 (encompassing 4712 vessels, 281 shipyards, and 967 shipping companies), four distinct multinomial logit models were developed. These models, comprising a full-sample model and specialized ones for container vessels, dry bulk carriers, and tankers, aim to identify the key determinants influencing shipowners’ choices of alternative fuels when ordering new vessels. It is interesting to find that alternative fuels (e.g., liquefied natural gas) are the most attractive choice for gas ships and ro-ro carriers; others prefer to use conventional fuels. Furthermore, this study reveals that shipowners’ choices of new fuels significantly correlate with their nationality. While it is well-established that economic factors influence shipowners’ choices for new ship fuel solutions, the impacts of bunker costs, freight rates, and CO₂ emission allowance prices remain relatively limited. It is evident that the policies of the International Maritime Organization (IMO) to reduce carbon emissions have increased the demand for building new energy ships. This research contributes to bridging research gaps by shedding light on the intricate interplay of factors that influence shipowners’ preferences for alternative marine fuels amidst global regulatory shifts. It also offers valuable insights for policymakers aiming to incentivize shipowners to transition towards sustainable energy sources.

Purpose: This study aims to propose a theoretical model to characterize the optimal forward freight agreement (FFA) procurement strategies and investigate the determinants of FFA trading activities from a new cross-market perspective. Findings: A two-step model specification is used to empirically test the theoretical results for the Capesize, Panamax and Supramax sectors. It is found that spot demand has a positive relation with FFA trading volume for all three sectors. Moreover, spot demand volatility has a negative relation, while the correlation between spot demand and spot rate has a positive relation with FFA trading volume for the Capesize and Panamax sectors. Originality/value: The results show that the expected spot demand is scaled by a “quantity premium,” which is the product of a demand covariance term, a demand riskiness term and a demand volatility term. This can be used by the traders in the FFA market to construct their hedging strategies.

The shipping industry is investigating alternative fuels for ships in order to comply with stricter emission requirements implemented by the International Maritime Organization (IMO). Liquefied natural gas (LNG) is a promising alternative since it could reduce emissions substantially and offer potential fuel cost savings. But the investment in LNG fuelled vessels is currently facing a high degree of uncertainty, such as the differential between the prices of LNG and conventional maritime fuels, the availability of LNG, and the reliability of its supply chain. This paper makes an attempt to study the possibility of investing in LNG powered vessels under uncertainty. A deferral option model is proposed to quantify the value of flexibility for a deferral based on multi-variables following specified stochastic processes. By exploiting the stochastic processes, it is possible to determine the value of deferral by solving a dynamic program using a least squares Monte Carlo simulation. The model is tested on an investment of a new chemical vessel with 19,000 deadweight tonnage (dwt) powered by LNG. Empirical analysis may suggest different investment strategies based on the probabilities of exercising an option, and related option values each year, and it indicates further that the attractiveness of LNG as a ship fuel is dominated by three parameters: difference of ship prices between a LNG powered vessel and a reference one, price difference between LNG and conventional fuel prices, and the share of operation time inside emission control areas (ECAs).

10. “… [W]ithout forecasting, there is effectively no freedom of decision.”2. Bertrand de jouvenel.The Art of Conjecture,1967. pp276.1. From the ancient Greek Miletus, who used his knowledge of ast...