Unveiling the influence of bargaining power in shipping: An empirical study on iron ore freight market

Abstract

Shipping freight contracts are heterogeneous services surrounded by asymmetric information and traded in over-the-counter markets, where the physical market agents help match ship operators and charterers. These contracts create opportunities for negotiations tailored to traders’ needs. Despite the ubiquitous role of bargaining in establishing freight contracts, the shipping literature lacks systematic empirical investigation of pricing mechanisms from a bargaining perspective. This article seeks to unveil the influence of the bargaining power of ship operators and charterers in shipping, offering insights for industry players in individual iron ore voyage charter contracts across two pivotal routes: Brazil-China and Australia-China, spanning January 2013 to June 2023. The results show evidence of how the bargaining power of the ship operators and charterers fluctuates over time and is shaped by contractual terms, traders’ characteristics, and macroeconomic factors, which can be helpful for the players to improve their respective bargaining power. Academically, this study offers an operationalizable price bargaining framework in the context of freight markets, that could initiate a conversation among scholars to consider shipping as a valuable case study for empirically exploring pricing mechanisms through bargaining, thus enriching the broader bargaining theory landscape.