Bulk without boundaries : an empirical study of bulk vessel speeds absent of contractual constraints

Abstract

Classical maritime theory suggests that vessel operators optimize speed based on prevailing market conditions. However, numerous academic contributions have failed to provide supportive empirical evidence of real life speed optimization and many believe that contractual limitations constitutes the hurdle for the theory being practiced. In this thesis we empirically test the effect of contractual constraints on speed optimization. More specifically, we test whether speed choice and the extent of observable speed optimization differentiates before and after a vessel has entered into a contract. In addition, we test whether an estimate for revenue expectations is a better predictor for speed than current spot market rates. Using geospatial (AIS) data for ballasting Capesize vessels and corresponding freight market indices, we find that vessels increase speed after entering into a contract. This implies that the contract structure might affect speed decisions. When testing the effect from exogenous market conditions, such as freight rate levels and fuel prices, we get ambiguous results. Surprisingly, we cannot detect any trustworthy indicators for vessel speed optimization whilst vessels are free of contractual constraints. On the contrary, we find that operators are more responsive to shifts in market conditions after having entered into a contract. These effects are however only marginal compared to what is suggested by theory. Overall we conclude that it is questionable whether or not speed optimization theory is adequate to describe speed optimization in practice. As we can not find evidence that the contracting state constitutes a significant hurdle for speed optimization, we believe earlier literature tend to overemphasize the importance of contractual barriers.