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The winds of winter : how wind forecasts predict next-day freight rates in dry bulk shipping

Stokseth, Aksel; Amsrud, Torstein Eika
Master thesis
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URI
http://hdl.handle.net/11250/2612180
Date
2019
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  • Master Thesis [4207]
Abstract
This thesis examines the short-run capesize dry bulk shipping market, where shipping

theory states that freight rates are driven by supply, as demand is inelastic. Transporting

cargo faster is an important way to increase supply if demand increases in the short run.

Market participants monitor the speed of the available fleet and form expectations of

future supply, and these expectations are key drivers of freight rates in the very short

run. Any factor affecting the speed of vessels will therefore have an impact on freight

rates. We combine local wind forecasts with positional vessel data, and show how wind

forces push vessels forwards and inflate their speed. Based on these findings, we propose

a novel positive wind force measure. We then show our positive wind force measure

predicts next-day freight rates. For a one standard deviation increase in the positive wind

force at average level, we find the next-day spot rate increases by 0.3% and the next-day

forward freight agreement (FFA) rate increases by 0.6%. Our measure helps shipowners

and charterers make better pricing decisions in the spot market, and hedge their exposure

better through the FFA market. Other traders can also profit in the FFA market, as we

show changes in our measure can predict changes in the FFA rate greater than transaction

costs.

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