Edited by Kevin Cullinane
Chapter 4: Fixtures-based Freight Rate Indices, and their Impact on Freight Rate Modelling in the Shipping Industry
Albert Veenstra and Jan van Dalen 4.1 Introduction There is a long history of modelling of prices of commodity transportation by sea. These prices are referred to as (ocean) freight rates. Early contributions go back to the work of Tinbergen (1934) and Koopmans (1939). The shipping industry is characterized by an abundance of individual contract data, which are collected and published by so-called charter brokers. The industry publishes these data both in raw form, as monthly and even weekly average prices for selected ship sizes and commodities on selected routes, and in the form of unit value indices. Early in the twentieth century, scholars started to compile indices to measure and catalogue price developments in and between shipping markets. One of the earliest efforts is Isserlis (1938), who presents several indices, one of which he started to calculate in the early 1920s. Currently, the supply of market data is dominated by two types of data series: daily indices on various bulk shipping markets developed by the Baltic Exchange, and weekly or monthly time series of average freight rates for specific ship size, commodity and route combinations. These two types of data series are based on completed contracts in the market. At times, however, there are gaps in the data because within that period and, for a specific commodity or route, there were no actual contracts reported. In such cases, panels of charter brokers estimate the missing data. While the average freight rate series use these estimates intermittently, the Baltic Exchange...
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