A time series analysis of the impact of the COVID-19 pandemic on container shipping freight rates: An application to the Asia-Europe trade route

Abstract

The outbreak of the COVID-19 pandemic caused a sudden disruption to the shipping industry. However, for container shipping, freight rates have reached record highs during the pandemic. Shipping companies realise that understanding the impact of exogenous shocks on freight rate fluctuations to forecast freight rates is critical. Current studies on the correlation between shipping freight rates and the COVID-19 pandemic have usually concentrated on the dry bulk and tanker segments. In order to fill the research gap, this study focuses on how container shipping freight rates on the most dominant shipping routes, the Asia to Europe trade lane, react to the COVID-19 pandemic. Using weekly data from recent years (January 2, 2015 to October 8, 2021), including the period of the COVID-19 pandemic, the GARCH (1,1) model is applied to investigate whether the pandemic and the macroeconomic environment during this period will lead to fluctuations in container shipping freight rates, and to measure the extent to which these variables affect container shipping freight rates. The main findings of this study are 1) the pandemic outbreak has a significant and positive association with container shipping freight rates, 2) the stock market price that causes short-term fluctuations in shipping demand has a strong positive relationship with container shipping freight rates, and 3) for container shipping, the oil price does not exhibit any significant relationship with freight rates.