Publication Type

Journal Article

Version

acceptedVersion

Publication Date

6-2022

Abstract

In this paper, we answer a novel question on how the value of goods carried can affect the freight cost. We focus on the issue based on a more specialized freight market involving transport of seaborne iron ore from mining ports to Qingdao in China during the period 2014 to 2019. We construct simultaneous systems of demand–supply equations on both the iron ore market and the freight market. In the models, we explain how endogeneity of iron ore as a regressor can arise due to the nexus between the two markets, and that the freight demand is largely a derived demand from iron ore demand by PRC firms importing the iron ore. Employing instrumental variable two-stage least squares regression, it is shown that iron ore price negatively affects, ceteris paribus, the freight rate of bulk carriers ferrying the iron ore. Industrial growth, bunker fuel oil, Baltic Dry Index, and transport distance have positive effects on the freight rates.

Keywords

Freight rate, Iron ore price, Endogeneity, Panel regression

Discipline

Agribusiness | Finance and Financial Management | Operations and Supply Chain Management

Research Areas

Finance

Publication

Journal of Commodity Markets

Volume

26

First Page

1

Last Page

12

ISSN

2405-8513

Identifier

10.1016/j.jcomm.2021.100217

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jcomm.2021.100217

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