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Consolidation has not reduced volatility, says analysis


In Issue 357 of the Sunday Spotlight, SeaIntel Maritime Analysis analysed the impact of consolidation on volatility. It took a closer look at market volatility out of Asia, based on the CCFI rate index which encompasses both contract and spot rate data over the past 20 years. In Q1, Q2 and Q4 was seen a gradual increase in volatility—most clearly in Q1 and Q2. And during the full 20-year period was seen a tripling of the level of rate volatility in Q1 and a doubling in Q2 and Q4. Only Q3 has not seen a marked change in volatility, said a release.


1998 and 2009 are clearly sharp outliners, and 2016 less so. But the underlying Q3 trend is in practice flat. Hence, the data clearly shows that whereas market volatility is in essence unchanged in the peak season, it has been going up sharply off-peak; especially the developments in Q1 around the Chinese New Year have become much more volatile.


It is evident that there is a degree of positive correlation between consolidation and market volatility—but also that the slope is completely opposite of what might be intuitively expected. The figure here clearly shows a correlation between higher consolidation and higher volatility. Note, though, that it shows correlation but not causality. It is, therefore, irrefutable that the two are correlated, but it is not clear why this is so. However, the most probable hypothesis for this development is that in the path towards consolidation, it becomes increasingly important for the main carriers to maintain and grow their market share—and as the markets become more commoditised, increasingly freight rates become the most important tool with which to accomplish this objective—in turn driving volatility upwards, the release added.


Commenting on the data, SeaIntel CEO, Mr Alan Murphy, said: "Consolidation is indeed seen as necessary in order to stabilise the markets, but the path leading to a critical mass of consolidation has the counter-intuitive effect of actually destabilising the markets."


Source: Exim News Service - COPENHAGEN, April 15


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