Econometric Modelling of Second-hand Ship Prices

This paper provides an econometric analysis of second-hand ship prices. It starts with a presentation of previous attempts to model second-hand ship prices and their shortcomings. After that a theoretical Error Correction Model is developed making up for these shortcomings. Its results are analysed and compared to those of an atheoretical Autoregressive Model within the context of Econometric Business Cycle Research. This allows the model to describe and forecast cycles and to evaluate policies. It is demonstrated that second-hand prices of different ship sizes/segments react differently to changes in the market variables that determine them. This provides support for performing analysis at a disaggregated rather than an aggregated level. Newbuilding and timecharter rates have the greatest effect of all variables on the determination of second-hand prices, in most cases both in the short and the long run. The cost of capital is only significant for bulk carrier owners. The only exception is the Suezmax segment due to its particular characteristics. Finally, it is found that the size of the orderbook, as a percentage of the fleet, has a negative effect on the prices of second-hand vessels only in the long run and only in large and Panamax tankers.