An analysis of entry and exit decisions in shipping markets under uncertainty

For single shipowners, an important question to ask is when the optimal moment of buying or selling a ship has arrived. This decision of buying or selling a ship can be seen as entering or leaving the shipping market. The prices and revenues in this market were proven to follow a cyclical evolution. A real options model involving a discrete-time Markov process is applied in this article to analyse the described decisions in the cyclical environment of container shipowners who charter out their ships under time charter agreements. Parameters are estimated using real data. The outcomes show robust and realistic results. The methodology and the insights from the analysis can be used by shippers to make funded entry and exit decisions. Finally, some advice for future research is given.