Analysis of Liner Shipping Freight Rates

Shipping is one of the world's most international business industries which is one of the prime forces responsible for creating a global economy. The most important development of the shipping business was the unitization of goods leading to containerization of the liner shipping industry. The early liner freight market was mainly protected by pricing conferences. However the changes of containerization and industry consolidation and regulations have pushed the system towards exploring other competitive means such as abolishing the conferencing system and enhancing their services. This thesis first examined the dynamics of the liner freight rate market and the operations of the liner shipping business. Liner carriers operate a regular service between ports for various types of cargos are very different from bulk shipping and are management intensive in a growing competitive market. The economic mechanism consisting of demand and supply factors which drives the liner freight market are identified for analysis. Demand factors such as world trade volumes and favourable currency exchange rates may increase the freight rates in a particular trade lane but unexpected political or social events are also found to cause the freight rates to dip. On the supply side, advances in ship technology have greatly increase the ship capacity up to 14,000 TEU and constant pressure by the EU on the shipping industry's competitiveness. Using the demand and supply factors, a simplified shipping model is developed to help forecast the freight rates for liners. The quantitative analysis yielded results that showed that the liner freight rate is largely related to the import volumes. Shippers will only ship when there is cargo required and freight rates are not speculative in nature and can be used as a tool to assist in making decisions. Lastly, this thesis also discussed the limitations of freight rate forecasting. As there are a lot of variables involved in affecting liner freight rates, much care and skills is needed in deciding which data variable to use in helping them to prepare for the future