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Publication The shipping crisis starting in 2008: Could it have been prevented?

Type

Working Paper

Institution(s)

University of Hamburg

Year

2015

Author(s)

Sebastian Opitz
Henry Seidel
Alexander Szimayer

Research Area

Ship Finance

Keywords

Risk management, ship finance, conditional copula

Abstract

The shipping crisis starting in 2008 was characterized by sharply decreasing freight rates and sharply increasing financing costs. This led to numerous insolvencies of shipping companies and impairment losses of their lending institutions. We analyze the dependence structure of these two risk factors employing a conditional copula model with a focus on time-varying tail dependence which we interpret as shipping crisis risk. As conditioning factors we use the supply and demand of seaborne transportation. We find that crisis risk strongly increased already about one year before the actual outburst of the crisis. Our results also show that the shipping crisis was predominantly driven by an oversupply of transport capacity rather than a declining demand. Taken these results together, market participants could have prevented or alleviated the crisis’ consequences by reducing the ordering and financing of new vessels.

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