Dry bulk freight market analysis and forecast under the yield management framework

Abstract

This paper aimed to develop a general yield management framework (YMF) of dry bulk shipping companies. First of all, the fitness of yield management in dry bulk shipping is examined against the five classical yield management characteristics and the fitness is proved. To put simply, yield management is profit maximization which is realized by subtracting costs from revenue. On one hand, a model of dry bulk freight rate is generated by a holistic study of dry bulk sea transport demand over supply which collectively set the freight level through capacity utilization ratio (CUR). With this calculated CUR ratio, the revenue forecast is becoming more reliable. On the other hand, shipping costs are divided into four types: capital cost, periodic maintenance,operating cost and voyage cost. This paper can never be complete without covering the major risk items which also have direct or indirect impacts on revenue or costs. We conducted interviews with some major dry bulk shipping companies in Singapore to collect managerial opinions. Then we categorized major shipping risks into six factors: freight risk, political instability, counter-party risk, compliance of safety and security regulations, financial uncertainty, and bunker price fluctuation, and risk management for each category is discussed accordingly. With revenue, cost and risk management in place, the YMF of dry bulk shipping has been framed. To better illustrate the YMF developed, this paper covers a detailed case study on the Capesize dry bulk shipping sector which we feel meaningful to demonstrate through our YMF.