Effect of macroeconomic shocks on the shipping market: Focusing on COVID-19 pandemic

This study examines the effect of macroeconomic shocks on the shipping market using time-series data by comparing the periods of the COVID-19 and traditional crises. A structural vector autoregressive model and forecast scenario were applied for the analysis. The results can be summarized as follows. First, the response of freight rates to macroeconomic shocks in the shipping market was consistent with the theoretical predictions. Second, the freight rates were the most affected by VIX shock during the global financial crisis, by fleet development shock during the period of overbuilt shipping capacity, and by the oil price during the periods of instability in the oil market. In particular, we found that businesses recovered more quickly from the shock during the COVID-19 compared to other periods, implying that the uncertainty had a greater influence than real economic factors during the pandemic. Finally, forecast scenario analysis showed that freight rates fell sharply immediately after the global financial crisis and during COVID-19 but the pace of recovery was faster during the COVID-19 than the global financial crisis. This study is significant as it empirically shows that the main factors affecting the shipping market and its transition process differ according to the characteristics of episodes.