Empirical Analysis of Charterers’ Willingness to Pay for Energy Efficiency : A Study on Time Charter Contract Rates in the Dry Bulk Market and GHG Ratings by RightShip

2023

This thesis investigates whether charterers value energy efficiency in the dry bulk time charter

(TC) market using greenhouse gas (GHG) emissions ratings from RightShip and TC fixtures from

Western Bulk and Clarksons Shipping Intelligence Network (SIN). An energy efficiency premium

in the TC market would incentivize shipowners to invest in energy efficiency technology as they

would recoup some or all their investment, strengthening the investment case. Energy efficiency

technology on ships allows less fuel consumption for the same speed, effectively reducing harmful

emissions (IMO, 2023). Therefore, an increased adaptation of such technology would help the

shipping industry to contribute to the worldwide effort to lower carbon emissions.

Applying different multiple linear regression models to the size segments Handysize, Panamax,

Capesize, and Supramax, we find no statistically significant energy efficiency premium for any

segments. This implies that charterers are unwilling to pay for energy efficiency in the TC market.

A TC contract facilitates dynamics that can create principal-agent problems between the shipowner

and the charterer. We identify the presence of split incentives and information asymmetry between

the contract parties, which can ultimately lead to market failure resulting in a lack of energy

efficiency investments by shipowners. It is necessary that the International Maritime Organization

(IMO) and the European Union (EU) implement policies that help unite the incentives of the

shipowner (principal) and charterer (agent) and equalize the information asymmetries between the

two to correct for inefficient market outcomes. Therefore, the EU Monitoring, Reporting, and

Verification (MRV) and the IMO 2023 regulations can make a difference.

On the other hand, we find a discount for vessels with below average energy efficiency

performance in the Handysize and Supramax segments, showing that a relative lack of energy

efficiency technology is penalized. This could incentivize shipowners to invest in energy

efficiency as they would otherwise have to accept a discount, lowering their revenue potential.

However, no publicly available cut-offs on energy efficiency performance by charterers exist, and

there is a low adaptation rate of energy efficiency technology in the shipping industry. Our data

sample has weaknesses in terms of size and biased sampling, making the discount representative

of one charterer, Western Bulk, rather than the whole market.