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ROLE OF INTEREST RATES ON FLEET CAPACITY ADJUSTMENT DECISIONS OF SHIPOWNERS

Abdullah Açık (), Hüseyin İshak Halil Kesi̇ktaş () and Sadık Özlen Başer ()
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Hüseyin İshak Halil Kesi̇ktaş: Dokuz Eylül University, Maritime Faculty
Sadık Özlen Başer: Dokuz Eylül University, Maritime Faculty

Journal of Research in Economics, Politics & Finance, 2020, vol. 5, issue 1, 66-80

Abstract: The aim of this study is to empirically examine the impact of real interest rate on global fleet adjustment processes by modelling new orders and demolitions. The data set used consists of 34 annual observations and covers the years between 1985 and 2018. According to the results, the freight rate has a positive impact on amount of new ship orders and a negative impact on amount of ships scrapped, while the real interest rate has a negative impact on both amount of new ship orders and ships scrapped. The impact of freight rate on new ship orders and demolitions is clear whereas the impact of the real interest rate may be explained by two reasons. Increasing capital costs due to increasing interest rates may cause decrease in both new orders and demolitions as ordering new ships becomes more expensive. The second one may be related to expectations of ship investors to gain more revenue by evaluating their capitals on higher interest rates instead of ordering new ships. Therefore, it is important to limit negative impact of high interest rates by various policies so that maritime transport sector can contribute to economic growth by facilitating trade with sustainable costs.

Keywords: Interest Rate; Ship Investment; Demolition. (search for similar items in EconPapers)
JEL-codes: E43 F62 R41 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ahs:journl:v:5:y:2020:i:1:p:66-80

DOI: 10.30784/epfad.642061

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