Shipping market integration: The case of sticky newbuilding prices

摘要

In this article we derive an equation defining contemporaneous equilibrium prices across the four shipping markets: the newbuilding market, the second-hand market, the demolition market and the freight market. The model requires rather general conditions, namely that (i) all second-hand ships are priced based on linear depreciation down to scrap value, (ii) expectations of the future scrap value and lifespan of the vessel are equal to current values and (iii) the term structure of (time charter) freight rates is observable. In the empirical part of the article we use this equilibrium relationship to illustrate the presence of a 'term structure of newbuilding prices' and show that the lower volatility of newbuilding prices compared with second-hand values is a result of a time-varying delivery lag, which is positively correlated with the alternative cost of operating in the freight market. These observations are important for statistical analysis of the dynamics of ship values.