A THEORETICAL MODEL FOR SINGLE VOYAGE FREIGHT RATES IN THE SHORT RUN by Serghios

A statistical model is constructed describing spot freight rates in terms of the operating costs of the marginal ship, the size of the various vessels relative to the marginal ship, the proportion of the tanker fleet operating in the spot market and the proportion of the fleet which is laid up for more than two months. The model is tested over the entire period from September 1971 to December 1976, and also over shorter periods characterized by either abnormally high or abnomially low rates. Based on these results, a measure of the economies of scale for tankers of different sizes is developed, and the proportion of these economies which is enjoyed by the shipowner, under various market conditions, is calculated. The findings generally verify the underlying theoretical postulates. *This paper is based on the first author's thesis entitled "Transportation Costs and Oil Prices" which was submitted in partial fulfillment of the requirements for the Master's degree in Management at the Massachusetts Institute of Technology in February 1978, and the second author's continuing research in shortterm and long-term tanker rates.