AN ANALYSIS OF INTERNATIONAL GRAIN FREIGHT RATES

Recent advances in applied econometrics are employed to model international grain freight rates. Directed Acylic Graphs (DAGS) and Autoregressive Conditional Heteroskedastic (ARCH) error processes are applied to 1988-1997 time series data. The data set include over 12,000 observations on ship rates, origin/destination ports, and ship terms. Directed Acylic Graphs are used to help specify the relationship between ship rates and a set of eleven "possible" explanatory variables. The estimated equation explains 69 percent of the variation in international grain freight rates with most explanatory variables statistically significant at the one percent level. Cargo size, a proxy for ship size, was negatively related to ship rate for shipments up to 72,000 metric tons. As expected, highest ship rates were associated with that ship term which made this ship owner financially responsible for loading and unloading (liner term) while lowest rates were associated with the term that made the charter responsible for these activities (free-o\in-and-out). Results suggest cost of either ship loading or unloading to be about $11/metric ton. Consistent with expectations, grain rates increase with an increase in voyage-chartered tonnage of coal. However, rates decline as voyage-chartered tonnage of other ores (bauxite) increase. This unexpected result may occur because of increased grain back-haul opportunities from selected grain exporting countries. Results also suggest the presence of seasonality in grain freight rates with highest rates in the second quarter and lowest rates in the third quarter. Finally, rates of U.S. flag vessels were considerably higher than foreign flag vessels. The estimated model was found superior in generating out-of-sample ship rate forecasts as compared to a random walk model suggesting the estimated model may be a useful tool for forecasting grain freight rates.

Language

  • English

Media Info

  • Features: Figures; References; Tables;
  • Pagination: p. 160-188

Subject/Index Terms

Filing Info

  • Accession Number: 00804775
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Jan 10 2001 12:00AM