Received: 5 November 2015 Revised: 20 July 2017
Measuring crisis risk using conditional copulas: An
empirical analysis of the 2008 shipping crisis
Sebastian Opitz Henry Seidel Alexander Szimayer
Faculty of Business, Economics and Social
Sciences, Universität Hamburg, Hamburg,
Alexander Szimayer, Faculty of Business,
Economics and Social Sciences,
Universität Hamburg, Von-Melle-Park 5,
20146 Hamburg, Germany.
Australian Research Council,
Grant/Award Number: DP160104737 ;
Grant/Award Number: SZ 321/2-1
The shipping crisis starting in 2008 was characterized by sharply decreasing
freight rates and sharply increasing financing costs. We analyze the dependence
structure of these two risk factors employing a conditional copula model. As con-
ditioning factors we use the supply and demand of seaborne transportation. We
find that crisis risk strongly increased already about 1 year before the actual crisis
outburst and that the shipping crisis was predominantly driven by an oversup-
ply of transport capacity. Therefore, market participants could have prevented or
alleviated the consequences of the crisis by reducing the ordering and financing
of new vessels.
Shipping companies and banks involved in ship finance still suffer from the crisis that started in 2008. The vast number
of new vessels that have been ordered during the industry's boom led to a massive surplus of transportation capacity
and caused a sharp decline in freight rates and vessel values. Hundreds of shipping funds have already collapsed as they
are unable to pay back interest or principal to their lenders (see Goff, Odell, Ross, & Stothard, 2014). As a consequence,
ship-financing banks are also deeply involved in the crisis and face immense impairment losses. European banks are
especially hit as they cover about 80% of world shipping loans (see Stoltenberg, 2014). A main reason for the ordering of
new vessels is the delayed feedback of investment decisions because of time-to-build, which let shipping firms neglect
the investments of their competitors (see Greenwood & Hanson, 2015). Therefore, we investigate whether the shipping
crisis was predominantly caused by the collapse of the financial system, and thus exogenously, or at least partially by the
shipping industry itself. In the latter case it could have been prevented or at least alleviated.
The major risk factors for a shipping company's balance sheet are the value of its vessels on the asset side and its
financing costs on the liability side. While the financing costs can be approximated by bond yields of a certain rating
class, specific vessel values are less easy to observe.
Instead, one may look at freight rates, which not only show a strong
correlation to vessel values but also a higher liquidity and transparency (see Adland & Koekebakker, 2007; Albertijn,
Bessler, & Drobetz, 2011; Tsolakis, Cridland, & Haralambides, 2003). Therefore, we consider freight rates as the suitable
instrument to capture price risks in the shipping market.
We speak of a “crisis in shipping” when we simultaneously observe extreme asymmetric adverse movements of both
balance sheet risk factors, a sharp decline of freight rates, and a strong increase of financing costs. The dependence of
these two factors is modeled by the main drivers of supply and demand of shipping services. Following Stopford (2009),
Clarksons and The Baltic Exchange publish periodic price assessments that refer to certain reference vessels. These assessments are not actual market
prices and hence may not be suitable for determining the correct market value of a particular vessel.
J Appl Econ. 2018;33:271–289. wileyonlinelibrary.com/journal/jae Copyright © 2017 John Wiley & Sons, Ltd. 271