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Applied Economics Letters

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The nonlinear dynamic process of macroeconomic

development by modelling dry bulk shipping market
a a
Ching-Chih Chang & Tin-Chia Lai
a
Department of Transportation and Communication Management Science , National Cheng
Kung University , Tainan, Taiwan
Published online: 06 Apr 2011.

To cite this article: Ching-Chih Chang & Tin-Chia Lai (2011) The nonlinear dynamic process of macroeconomic development
by modelling dry bulk shipping market, Applied Economics Letters, 18:17, 1655-1663, DOI: 10.1080/13504851.2011.558470

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 Applied Economics Letters, 2011, 18, 1655–1663

The nonlinear dynamic process of

macroeconomic development by
modelling dry bulk shipping market
Ching-Chih Chang* and Tin-Chia Lai
Department of Transportation and Communication Management Science,
National Cheng Kung University, Tainan, Taiwan
Downloaded by [University of Windsor] at 23:42 17 November 2014

The purpose of this research is to study the trough of the global economics
crisis in 2007 by studying business cycle of dry bulk shipping market using
an integrative model over the period from January 1999 to October 2008
with developing an integrative model. This market is comprised of three
different vessel sizes (Capesize, Panamax and Handymax), which were
affected to varying degrees by the global economic crisis. Empirical results
indicate that there is one complete cycle during the research period, which
was methodologically determined by X11 decomposition and the Phase
Average Trend (PAT). The values of Mean Absolute Percentage Error
(MAPE) for the predictive model are 4.0383% (Capesize), 0.8393%
(Panamax) and 15.5012% (Handymax). The values of MAPE for the
forecasting models are 19.4276%, 10.146% and 8.0399%, respectively.
Results indicate that the troughs are September 2009 (Capesize and
Panamax) and July 2009 (Handymax). This article concluded that the
shipping and macroeconomic recession will persist until the end of 2009.

Keywords: dynamic process; integrative model; dry bulk market; X11;

MAPE
JEL Classification: C51; E32; L91

I. Introduction economic crisis, and it appears unlikely that seaborne

Since 2003 there has been robust growth in the trading
of international merchandize that has had a tangible
effect on Gross Domestic Product (GDP). According
to a report commissioned by the United Nations
Review of the Maritime Industry in 2008, the shipping
industry has clearly emerged as a major beneficiary, in
the light of its monopoly of more than 80% of the
global trade in merchandize. These data indicate that
global GDP grew 3.8%, whereas seaborne trades
increased by 5.5% in 2007. However, there has been
a slowdown in growth with the advent of the global
*Corresponding author. E-mail: chan5305@gmail.com
trade will prove an exception to the projection of the
International Monetary Fund (IMF) of a general
decline in growth to 0.5% in 2009. As global demand
weakens, it can be expected that shipping tonnage will
shrink at a commensurate rate. This state of affairs has
led to an accentuation of recession and recovery as
components of the business cycle.
Seaborne merchandize trade is carried by secondhand
ships and reliant on three classes of vessel: container, dry
bulk and tanker. A division of the world fleet by size and
principal vessel type reveals that containerships com-
prise 144 655 thousand of Deadweight Tonnage

Applied Economics Letters ISSN 1350–4851 print/ISSN 1466–4291 online # 2011 Taylor & Francis 1655
http://www.informaworld.com
DOI: 10.1080/13504851.2011.558470
 1656
(DWT), with dry bulk carriers accounting for 391 127
thousand of DWT and oil tankers some 407 881 thou-
sand of DWT. As a percentage of the global fleet, the
figures are containerships (12.9%), dry bulk carriers
(35.0%) and oil tankers (36.5%) (Review of Maritime
Transport, 2008). Although the percentage of the oil
tanker was larger than dry bulk carriers, the develop-
ment of international seaborne trade was 33.4% in tan-
kers and 66.6% in dry bulk carriers.
Secondhand ships constitute the majority of carriers
in the dry bulk market. Previous researchers have
devoted their attention to the problem of how to
model secondhand shipping prices in relation to vari-
ables such as trade volume, scrapping and freight rates
(Tsolakis et al., 2003; Syriopoulos and Roumpis, 2006;
Alizadeh and Nomikos, 2007). Although not lacking
merit in its own right, this article regards it as unfortu-
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nate that this emphasis has fostered a benign neglect of
how the business cycle could be modelled on the second-
hand ship market. Redressing the balance means bring-
ing to the forefront of the business cycle the conceptual
significance of recovery (trough–peak) and recession
(peak–trough) during the period of global financial cri-
sis. Hence, this study develops a novel predictive model
to forecast the trough of global financial crisis which
happened in 2007 by studying business cycle for the dry
bulk market with reference to the main carrier of the
secondhand ship price. Hitherto, limited paper discusses
economic development by studying shipping industry.
The rest of this article is organized as follows.
Section II elaborates the specific models and data
used, with particular attention to development of the
novel predictive model. The results of the predictive
model and the forecasting model in the dry bulk mar-
ket are presented in Section III. The final section
provides a summary and conclusion.
II. Methodology
Data collection
Clarkson Research Services facilitated collection of
monthly data about the price of 5-year-old Capesize
secondhand ships of 150 000 DWT. Data were also
collected explicating the price of Panamax second-
hand ships that were 5 years old and 73 000 DWT, in
addition to comparable data about Handymax sec-
ondhand ships of 45 000 DWT. All data were collected
between January 1999 and October 2008, with prices
quoted per million dollars.
X11 time series decomposition
X11 was initially developed by the US Bureau of the
Census and commenced operation in 1965. It was
C.-C. Chang and T.-C. Lai
adopted by various statistical organizations, such as
the Australian Bureau of Statistics (ABS), Central
Planning Bureau: Netherlands Bureau for Economic
Policy Collection (CPB), Netherlands’ central bank
(DNB) and Centre for Economic Research (CCSO).
There is a general consensus (Shiskin, 1958; Ball and
Wood, 1996; Jaditz, 2000) that time series are com-
prised of four components: trend (T), cycle (C), seaso-
nal variations (S) and irregular fluctuations (I). Any
combination of time series has for the most part
assumed either an additive or multiplicative form
(Ghysels et al., 1996; Watson, 1996). In the additive
model, Zt ¼ TCt þ St þ It . However, in the multipli-
cative model the form is Zt ¼ TCt  St  It . This study
uses the multiplicative model, which assumes all the
components in the time series data are not independent.
Phase average trend and predictive model
The Phase Average Trend (PAT) method was pio-
neered by the National Bureau of Economic
Research (NBER) in the United States and developed
by the Organisation for Cooperation and Development
(OECD). This method is used for trend and cycle
estimation. PAT has attained widespread currency
among researchers (Peeters, 1998; Brunet, 2000;
Massmann and Mitchell, 2003; Zarnowitz and
Ozyildirim, 2006).
To capture fluctuations in the cyclical movement of
secondhand ship prices, it is necessary to develop a
forecasting model. Figure 1 demonstrates the relation-
ship between the variation trend and change rate. The
change rate and the variation trend before the peak are
positive (i.e. line A), however, the change rate is nega-
tive after the peak (line C). The change rate could thus
be written as
8
dyt
>
< dt >0; t<l ðt  l<0Þ
dyt
dt ¼ 0; t ¼ l ðt  l ¼ 0Þ ð1Þ
>
: dyt
t>l ðt  l>0Þ
dt <0;
where yt is the time series of the secondhand ship price.
The relationship between dy/dt and (t–l) could be
expressed as
dyt
¼ mðt  lÞ ð2Þ
dt
where m is the change rate of the secondhand ship
price and l is the time where secondhand ship price
reaches the maximum value. In addition, the change
rate is zero when the maximum value is reached (line C).
The negative sign (–) in Equation 2 means the change
 Modelling dry bulk shipping market 1657
Full cycle

yt
dyt
=0 Peak
dt

dyt
dyt <0
>0 dt
dt
2σ
C

α+β
α
t
t=λ
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t=1
Trought Trought

Fig. 1. Change rate and variation trend of secondhand ship price

pattern of the secondhand ship price resembles a bell maximum value of the secondhand ship price. From
curve (Fig. 1). This study modifies Equation 2: Equation 6, it is apparent that the maximum value is
the summation of a and b (Fig. 1). In general, para-
dyt ðt  lÞ meterl is also the month where maximum value is
¼ ðyt  aÞ ð3Þ reached, s is the SD and b is the magnitude of the
dt s2
curve. In Equation 6, the value of the secondhand ship
where the value of variance s2 is inversely proportional to price can reach convergence due to the negative square
the change rate (dyt =dt) and a is the initial value during the of the exponential phase term.
period studied (t = 1). Equation 3 could be rearranged as Finally, the Mean Absolute Percentage Error
(MAPE) is used to evaluate the forecasting model.
Lewis (1982) classified the value of MAPE to four
dyt ðt  lÞ degrees which are listed in Table 1.
¼ dt ð4Þ
ðyt  aÞ s2
Z Z
dy dðy  aÞ III. Empirical Study
¼ ¼ lnðy  aÞ ð5Þ
ðy  aÞ ya
X11 and PAT analysis of the dry bulk secondhand ship
market
where a is constant. The solution of Equation 5 could
be expressed as The cycle and trend of three different vessel classes in
the dry bulk market are displayed in Figs 2–4, respec-
ðtlÞ2 tively. These figures also demonstrate the Seasonally
yt ¼ a þ b e 2 s2 ð6Þ
Adjusted Series (STC) and the trend (T) from PAT for
Capesize, Panamax and Handymax, in addition to the
where yt are the approximating cycle values of the time cyclical movements (C) from January 1999 to October
series at time t, a is the initial value and l is the 2008. Seasonal adjustments are extracted from the

Table 1. Typical MAPE values and interpretation

MAPE (%) ,10 10–20 20–50 .50

Interpretation Highly accurate forecasting Good forecasting Reasonable forecasting Inaccurate forecasting

Source: Lewis (1982).

 1658
original data by X11 time series decomposition.
Stronger cyclical movements are readily discernible
since 2003.
Figures 2–4 illustrate the peak and trough from
January 1999 to October 2008. It should be noted
that there is only one whole cycle (trough–peak–-
trough) on each vessel. The dates of these turning
points (peak and trough) were determined by the
rules of Bry and Boschan (1971). Tables 2–4 record
C.-C. Chang and T.-C. Lai
the time of peak and trough of Capesize, Panamax and
Handymax vessels, respectively. The duration of a
cycle is 41 months for Capesize, 50 months for
Panamax and 29 months for Handymax. From an
examination of the three different dry bulk vessels, it
is evident that the recovery stages are longer than the
recession stages. The duration of the Panamax is the
longest, with Handymax registering on the opposite
end of the scale.

160
STC
140
Trend (T)
120
100 Cyclical (C) Peak
80 Trough
60
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40
20
0
–20
–40
99 00 01 02 03 04 05 06 07 08

Fig. 2. Seasonally Adjusted Series (STC), trend (T) and cycle (C) for Capesize from January 1999 to October 2008

120
STC
100 Peak
Trend (T)
80
Cyclical (C) Trough
60
40
20
0
–20
–40
–60
99 00 01 02 03 04 05 06 07 08

Fig. 3. Seasonally Adjusted Series (STC), trend (T) and cycle (C) for Panamax from January 1999 to October 2008

100
STC
80 Trend (T) Peak
60 Cyclical (C) Trought

40
20

–20
–40
99 00 01 02 03 04 05 06 07 08

Fig. 4. Seasonally Adjusted Series (STC), trend (T) and cycle (C) for Handymax from January 1999 to October 2008
 Modelling dry bulk shipping market 1659
Table 2. The durations of recovery and recession of Capesize secondhand ship price

Peaks (P) and troughs (T)

Phase Cycle T P T Durations

Recovery (Boom) November 2002 February 2005 27

Recession (Slump) February 2005 April 2006 14
Whole cycle November 2002 April 2006 41

Table 3. The durations of recovery and recession of Panamax secondhand ship price

Peaks (P) and troughs (T)

Phase Cycle T P T Durations

Recovery (Boom) December 2001 March 2005 39

Recession (Slump) March 2005 February 2006 11
Whole cycle December 2001 February 2006 50
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Table 4. The durations of recovery and recession of Handymax secondhand ship price

Peaks (P) and troughs (T)

Phase Cycle T P T Durations

Recovery (Boom) September 2003 April 2005 19

Recession (Slump) April 2005 February 2006 10
Whole cycle September 2003 February 2006 29

Prediction associated with the global economic crisis. The cycles

This section discusses the predictive model in terms of
the cyclical movements of the markets relating to
Capesize, Panamax and Handymax vessels. Table 5
shows the parameters of predictive models developed
in Equation 6. The value of MAPE is 4.0383%,
0.8393% and 15.5012% on Capesize, Panamax and
Handymax, respectively. All the values are fewer than
20%, which may be construed as a satisfactory pre-
diction (Lewis, 1982). On this basis the model can be
deployed in the next section to forecast the trough
of predictive data are shown in Figs 5–7.
Forecasting
This article obtained one whole cycle (trough–peak–-
trough) and a half cycle (trough–peak) from PAT
analysis. This section uses the novel predictive model
developed in Equation 6 to forecast the other half
cycle (peak–trough). The results are set out in
Table 6. All the values of MAPE are less than 20%,
thereby indicating the forecasting model can

Table 5. The predictive model of dry bulk market

Capesize Panamax Handymax

Parameters Part 1 Part 2 Part 1 Part 2 Part 1 Part 2

a –15 –11 –15 –11 –15 –11

b 42 64 42 78 44 67
 16 30 27 40 6.5 19
s 2.8284 5.4772 2.4494 5.4772 2 5.6568
MAPE (%) 4.0383 0.8393 15.5012
Whole cycle period November 2002–April 2006 December 2001–February 2006 September 2003–February 2006
 1660 C.-C. Chang and T.-C. Lai
Table 6. The forecasting model of dry bulk market

Capesize Panamax Handymax

Parameters Part 1 Part 2 Part 1 Part 2 Part 1 Part 2

a –21 0 –21 0 –21 0

b 15 35 14 38 14 34
 6.2 20 9 22 8 21
s 3.1622 4.3588 3.1622 4.3588 3.1622 3.8729
MAPE (%) 19.4276 10.146 8.0399
Whole cycle period April 2006–September 2009 February 2006–September 2009 February 2006–July 2009
Trough September 2009 September 2009 July 2009

adequately forecast the other cycle (peak–trough) recovery in a comparable time frame, namely 2012.
(Lewis, 1982). The empirical results indicate the The developed countries (such as the G7) will
trough is September 2009 for Capesize and undoubtedly endeavour to secure cooperative
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Panamax, with Handymax distinguished by its trough arrangements with important peak bodies, such as
occurring in July 2009. Thus, the inference that may be the IMF and the World Bank, as soon as possible.
drawn is the trough of the global economics through These predictions are also consistent with the para-
dry bulk shipping market is designated for late 2009. meters of the model that has been discussed here.
Figures 8–10 encapsulate the figures associated with
the forecasting (dotted line) and the original data.
The results of MAPE in Table 6 indicate that the IV. Conclusion
overall performances of the forecasting model are less
than 20% (Lewis, 1982). In other words, the models This study has constructed a predictive model, which
have acquitted themselves very accurately with respect was in turn applied to the cyclical fluctuations from
to macroeconomic development through the price of January 1999 to February 2006 (whole cycle), in con-
secondhand ships in the dry bulk market. This lends junction with the remaining half from February 2006.
considerable weight to the supposition that the trough The widely used MAPE criterion was pressed into
could happen towards the mid-end of 2009. The last service to examine the fit of the model in question. In
noteworthy trough following on from a financial crisis each case, the MAPE value is below 20%. Hence not
was a decade ago, and it was the 3 years in its after- only the predictive but also the forecasting model may
math that witnessed the first real significant signs of be adjudged a success (Lewis, 1982).
economic recovery. Even if some allowance is made The forecasting models clarify the troughs of the
for the severity of the crisis we are currently facing, it business cycle in economic activities through the dry
still appears reasonable to expect the beginning of a bulk shipping market. For Capesize and Panamax, the

Yt = –11 + 64e–(t–30) /60

2 α + β = 53
60
Predicted model
50
Original data α + β = 27
40
Part1
30
Part2
20
10 α = –11
0
–10
–20
–30 α = –15 2
Yt = –15 + 42e–(t–16) /16
–40
Nov-02
Jan-03
Mar-03
May-03
Jul-03
Sep-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06

Fig. 5. Predictive model and original data of the cycle for Capesize
 Modelling dry bulk shipping market 1661
2
Yt = –11 + 78e–(t–40) /60 α + β = 67
80
Predicted model
60 Original data
Part1 α + β = 27
40
Part2
20
α = –11
0

–20
α = –15 Yt = –15 + 42e–(t–27) /12
2
–40

–60

Dec-05
Feb-06
Dec-01
Feb-02
Apr-02
Jun-02
Aug-02
Oct-02
Dec-02
Feb-03
Apr-03
Jun-03
Aug-03
Oct-03
Dec-03
Feb-04
Apr-04
Jun-04
Aug-04
Oct-04
Dec-04
Feb-04
Apr-05
Jun-05
Aug-05
Oct-05
Downloaded by [University of Windsor] at 23:42 17 November 2014

Fig. 6. Predictive model and original data of the cycle for Panamax

2
Yt = –11 + 67e–(t–19) /64 α + β = 56
70 Predicted model
60 Original data
50 Part1
40 α + β = 29
Part2
30
20
10 α = –11
0
–10
–20
2
–30 Yt = –15 + 42e–(t–6.5) /8
α = –15
–40
Sep-03

Nov-03

Jan-04

Mar-04

May-04

Jul-04

Sep-04

Nov-04

Jan-05

Mar-05

May-05

Jul-05

Sep-05

Nov-05

Jan-05

Fig. 7. Predictive model and original data of the cycle for Handymax

2
Yt = 75e–(t–20) /38 α + β = 35 Predicted model
40 Original data
30 Part1
20 Part2
α=0 α + β = –6
10
0
2
–10 Yt = –21 + 15e–(t–6.2) /20

–20 α = –21
–30
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09

Fig. 8. Forecasting model and original data for Capesize

 1662 C.-C. Chang and T.-C. Lai

Yt = 38e–(t–22) /38
2 Predicted model
α + β = 38
50 Original data
40 Part1
30 Part2
20 α=0
α + β = –7
10
0
2
–10 Yt = –21 + 14e–(t–9) /20
–20
α = –21
–30
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Fig. 9. Forecasting model and original data for Panamax
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2
Yt = 34e–(t–21) /30 α + β = 34 Predicted model
40 Original data
30 Part1
20 Part2
α=0 α + β = –7
10

0
2
–10 Yt = –21 + 14e–(t–8) /20
–20
α = –21
–30
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09

Fig. 10. Forecasting model and original data for Handymax

relevant period is September 2009, whereas July 2009 Acknowledgements

is significant for Handymax. The suggestion here is The authors thank the Professor and Dean, Chin-
that by mid-end of 2009 the economic crisis should Yuan Hsieh, College of Informatics, Kao Yuan
manifest as a trough. Responses to the previous crisis University, for the suggestions and comments about
of 1999 provide grounds to expect an international methodology.
economic recovery in approximately 3 years (2012).
Given the gravity of our current situation, especially
the need to service bad debts, it appears likely that we
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