An Empirical Analysis on the Price Determinants of Secondhand Ship

Abstract

The aim of this study is to examine determinants of secondhand bulk carrier and oil tanker prices. The samples were taken from the S&P data between Jan 2018 and July 2022. This study uses the multiple regression analysis using software “SAS 9.4 TS Level 1 M3”. The study adopts a variety of independent variables that are logged size, logged age, logged Clarksea index, logged Clarksons average bulk earnings, logged Clarksons average tanker earnings, LIBOR, inflation indicator OECD, industrial production OECD, newbuilding country and classification society for empirical analyses of the secondhand ship price indicated as ‘logged sale price’ which is the dependent variable.

The sales price, which is the dependent variable, and size, age and Clarksea indices (Clarksea index, Clarksons average bulk earnings and Clarksons average tanker earnings) which are the independent variables were subsequently transformed into natural logarithmic function to stablize a nonstationary variance and improve a linearity of an exponential trend. The monthly index of each macroeconomic variable: LIBOR, inflation indicator OECD and industrial production OECD, were manipulated by time lead-lag relationship to maximize the explanatory power by coupling with the most reliable month’s rate of increase of each variable.

The study enables identifying and weighting the effect of each independent variable on pricing of secondhand ships being traded in the S&P market. In the case of ship’s logged size and logged age, by showing great significant effect, those factors are proven to be the most common and key factors in determining secondhand ship prices. The classification societies are undertaking a heavy role in the maritime industry by verifying the vessel’s conformities throughout a vessel’s lifetime. To valuate class’s role in the industry, this study utilizes it as a dummy variable to analyze the effect to the secondhand ship prices. From analysis, result shows that A, D, and L classes which are known as the major classification societies stand on price premium advantages in most cases of analyses. This study also found that a vessel constructed in Korea or Japan appeared transacting with higher prices than those vessels constructed in the other countries in the various analyses. In the case of macroeconomic variables, analysis results show that depending on the ship type and its size, those variables selectively affect the price fluctuations of secondhand ship.

The intention of this paper is to examine the actual market situation more closely by adopting diverse sized vessels from bulk carrier and oil tanker segments transacted in the secondhand ship S&P market. The differentiation of this study is that this thesis contains allot of up-to-date information taken from shipping research institutes and public domains. This study also introduces classification societies as an independent variable for determining secondhand ship pricing models which is considered the first attempt in an academical study. By applying diverse independent variables affecting the secondhand ship prices of bulk carriers and oil tankers, this study attempts to expand the scope and efficiency of practical application for investors. The study reaffirms prior research findings that the secondhand ship market is primarily market-driven. This study also hopes that future research will not limit to these two ship types but will be able to extend its scope to the other major ship types such as Container and Gas ships which are extremely prominent in the recent shipping market.