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

Boge, August Aase; Haldorsen, Olav Nordstoga
Master thesis
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URI
https://hdl.handle.net/11250/2680336
Date
2020
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  • Master Thesis [3258]
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.

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