Using MarineTraffic data for economic analysis

Cass Business School’s Professor Nikos Nomikos explains how MarineTraffic data may be used in academic research to model and forecast the freight market.

The data provided by MarineTraffic are an invaluable tool for economists that study the freight market. Interest in freight markets as a field of academic study has increased since the commodity price boom of early 2000s’. Shipping and freight rates are now recognised as leading indicators of world economic activity and as one of the important links in the process of globalization. This is based on the premise that more than 80% of world trade in volume terms is transported by sea (UNCTAD, 2017), but is also supported by numerous academic studies that use the Baltic Dry Index (BDI) as the bellwether of world economic activity. At its core is a very simple yet profound argument: developing countries need to import copious amounts of raw materials in order to manufacture and produce goods which are subsequently exported. In the majority of cases, raw materials are imported by ships and as such, before manufacturing and processing, there is a corresponding surge in freight activity and freight rates.

At a theoretical level, freight rates are determined through the complex interaction between supply and demand. Demand for bulk shipping services translates into demand for seaborne trade which, in turn, is driven by a few main factors. Undoubtedly, the most important one is the world economy since seaborne trade correlates with world GDP cycles. In addition, commodity markets affect the demand for shipping in both the short- and long-term. Regarding the former, short-term fluctuations in shipping markets may be caused by the seasonal character of some trades (e.g. in agricultural commodities). On the other hand, long-term fluctuations can be attributed to changes in the economies of the countries that import and export the corresponding commodities. Factors such as the average haul over which commodities are transported are equally important. The supply component of the shipping mechanism, on the other hand, corresponds to the cargo carrying capacity of the dry bulk fleet and depends on the size of the fleet as well as how intensively is used.

In practice, identifying the sources of fluctuation in freight rates, whether they are supply-driven or demand-driven, is not straightforward as neither the supply nor the demand for shipping are directly measurable or easy to quantify. Quite often, supply and demand factors are intertwined and difficult to disentangle. The availability of MarineTraffic data enables to study the freight market by providing another dimension to the already available freight rate data and makes this task easier. This is a valuable tool that provides an additional layer of information on factors such as cargo flows, volume of cargo shipped, average sailing speed, whether she is laden or ballasting etc. that provide real-time information about the state of the shipping market.

Using that information in academic studies is still something new. In a recent paper with Frederik Regli from Copenhagen Business School, we used MarineTraffic data to model the availability and utilisation of tanker vessels. We use the geographical location of the ships as well as an indication of which ships are unemployed and examine how these factors affect the market for Forward Freight Agreements (FFAs) in the tanker sector.

More recently, MarineTraffic kindly provided data on ship movements and port calls on specific shipping routes. We aim to use the data to study cargo flows and thus measure and capture shipping economic activity on a real-time basis. This will form the basis for data driven decision-making and market analysis which will be used to forecast freight rates, based on available ship capacity. This is a very exciting project and hope to be able to report more results soon.

Nikos Nomikos
Professor Nikos Nomikos is Director of the Shipping, Trade and Finance MSc at Cass Business School and co-author of leading shipping risk management reference book, Shipping Derivatives and Risk Management.