CBS Maritime PhD Project Develops a Model for Calculating the Price of Freight Rates with the Use of Big Data

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- With the help from MarineTraffic and their real-time AIS data on the movements of ships around the world, we are now able to forecast freight rates, based on available ship capacity. We use the geographical location of the ships as well as an indication of which ships are unemployed. For example, if a tanker is close to Venezuela it will not be in play to take a load out of the Arabian Gulf. Likewise, if a ship has already been chartered it will, in most cases, not try to secure another load. We then aggregate how many available ships there are and use this in a freight rate model, says PhD fellow Frederik Regli from the Department of Finance at CBS.

The “big data” consists of AIS information, managed by Marine Traffic including over 500 million vessel positions around the world, collected daily. The Automatic Identification System (AIS) is a satellite tracking system initially intended for collision avoidance on ships and by vessel traffic services (VTS) but now also rendering data for a model that provides forecasts on freight rates within shipping, based on available ship capacity.

On a theoretical basis, the study supports what is already known about supply and demand, namely that price is determined by the current supply and demand. However, the use of maritime big data to develop a sophisticated model for estimating prices on freight rates has not been done before:

- For many years’ ships have voluntarily been providing AIS information regarding their position around the world. In academic research, however, AIS data have so far, mainly been used in studies of vessel speeds and bunker consumption. However not much has been done on the analysis of freight rates from a business research point of view, says Frederik Regli.  

From Marine Traffic, Academic Relations Manager, Miluše Tichavska, underlines that they are very pleased with the collaboration with CBS and CASS on the project and states, that all parties have a lot to gain from this collaboration:

- For Marine Traffic, the identification of patterns, trends and complex interactions within the maritime world is part of our daily work. Therefore, we have no doubt of the mutual benefits that may come along while fostering relations with both faculty as well as CBS or CASS students. Indeed, and since its founding, MarineTraffic has been dedicated to a problem-solving approach that encourages academics and researchers to work together across fields, and institutional boundaries. As such MarineTraffic is interested in growing partnerships with leading academic institutions and industry members, said Tichavska

Research for a Complex Societal and Business Related Problem
While the study essentially confirms what is already known about freight markets, it also shows the great potential for shipping companies to use AIS data for data driven decision-making, business intelligence and market analysis.

Frederik Regli emphasizes the constructive collaboration with Professor Nikos Nomikos, who is affiliated with the Cass Business School’s Costas Grammenos Centre for Shipping, Trade and Finance, and their joint work together with Marine Traffic, who has kindly provided the essential sample of big data:

- In June this year we presented at the 2017 International Association of Maritime Economists (IAME) annual conference in Kyoto, where we received feedback from our colleagues within the international maritime economics community. We now look forward to incorporating this feedback into research articles and hope to start the publication process in the nearest future.

The project has been kindly supported by The Danish Maritime Fund, and as for CBS´ portfolio of maritime research activities, according to CBS Maritime Co-director, Leonardo Santiago, the PhD project aligns with CBS´ focus on knowledge production:

- This type of analysis is an example of context-driven, problem-focused and interdisciplinary research, that deals with business problems facing the shipping industry. We look forward to the continuation of the project and the further development of research articles, says CBS Maritime Co-director, Leonardo Santiago, Department of Operations Management.

For more information on the project, please contact Frederik Regli: fr.fi@cbs.dk