 Valuing cargo flexibility in oil transportationRoar Adland, David Hansson and Levin von der Wense Maritime Policy & Management, 2017, vol. 44, issue 7, 803-814 Abstract: The seaborne oil transportation market is served by two main types of vessels—crude oil tankers and product tankers. Product tankers are designed to move refined oil products, yet they can also opportunistically carry ‘dirty’ products such as crude and heavy fuel oil, subject to the cost of tank cleaning when re-entering the clean products trade. We apply an entry-exit real option model with a stochastic freight rate differential to derive optimal triggers for switching between the two cargo types and estimate the value of the switching option. We show that the value of active switching has grown over time, and generally exceeds the additional construction cost of a product tanker. Our findings are important both from a practical point of view and for our understanding of market integration in the tanker freight market. Specifically, shipowners can use our model as a basis for optimizing chartering policy for clean product tankers. We also show that there are periods where the dirty market is persistently stronger, and discuss the possible reasons for such apparent inefficiencies. Date: 2017 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:marpmg:v:44:y:2017:i:7:p:803-814 Ordering information: This journal article can be ordered from DOI: 10.1080/03088839.2017.1366079 Access Statistics for this article Maritime Policy & Management is currently edited by Dr Kevin Li and Heather Leggate McLaughlin More articles in Maritime Policy & Management from Taylor & Francis Journals |
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