Container Shipping Freight Rates and Resource Efficiency - A Simultaneous Equations Model Approach

Purpose: Today, container shipping is dominated by trade imbalances, overcapacities and a more or less transparent pricing behaviour, showing the sector's deficiency to use existing resources more efficiently. The purpose of this paper is to investigate price and quantity determinants that might lead to a better exploitation of existing resources. This is done in the case of the three major east-western container trade lanes, i.e. Transpacific, Far East - Northern Europe and Transatlantic. Research approach: Based on Stopford's (2009, Maritime Economics, Lloyds Press: London, pp. 135-174) classic supply-demand shipping market model, we aim at motivating basic mechanisms of freight rate and shipping capacity determination. This is done by a simultaneous equation model, taking the interplay of supply and demand side variables explicitly into consideration. Findings and Originality: This rather simple econometric approach offered first promising results with regard to freight rate and shipping capacity interdependencies. It was done without taking notice of the carriers' individual efforts to reduce their environmental footprint and to use resources more efficiently. Therefore, we pay particular attention on how a more efficient deployment of existing resources affects the development of the endogenous variables. Our investigations are extended to all major east-western container trade lanes in order to account for regional features such as different capacity utilizations or shifts of shipping capacities between markets. Research impact: The scholarly maritime economic literature offers a small but constant flow of contributions in this direction but lacks a more simultaneous treatment of prices and quantities and their macroeconomic parameters.