Container shipping contract design under financial constraints and default risks

Abstract

Due to the unexpectedly rapid outbreak of the epidemic, the global economy is experiencing a sluggish market situation. In the context of the global shipping network, liner shipping has been serving as a critical link to connect the global economy. The liner companies are currently struggling with solvency problems resulting from the utilisation of the leasing tactics, while the shipping market has not yet experienced a comprehensive recovery. This thesis is a compilation of three essays that deal with the intersection of business operations and financial management in container shipping chains that consist of liner companies, non-vessel operating common carriers (NVOCCs), financial institutions, and customers. Each of these essays focuses on a different aspect of this intersection. The first essay mainly focuses on the contract design of liner companies collaborating with NVOCCs under the financial constraint of which contract is more conducive to repayment. To achieve the above objectives, the default cost is involved to compare the default loss associated with each contract. Besides, three types of slot purchase contracts are compared in detail: buyback contracts, revenue sharing contracts, and quantity discount contracts. The research finds that buyback contracts and revenue sharing contracts are identical for the whole container shipping chains. Regarding expected profit, the profitability of buyback contracts and revenue sharing contracts are more conducive to the repayment of the financial lease than quantity discount contracts. In terms of profit under deterministic demand, the quantity discount contracts show better solvency than others in the face of low-rent financial lease contracts. In other cases, buyback contracts and revenue sharing contracts still outperform quantity discount contracts. The second essay investigates the interface between the optimal contract parameters and financial lease size under each contract type selection. Different from the first essay, the contract in this essay isolates the direct selling profit of the liner companies from the contract negotiation and achieves equilibrium conditions by invoking liner companies to assist NVOCCs in operational cost sharing. Still, the profitability of buyback contracts and revenue sharing contracts are identical. However, the different preferences of the liner companies and the NVOCC in buyback contracts and revenue sharing contracts will result in these two contracts being executed ii differently. Meanwhile, this will also lead to the buyback contract being more favourable to the repayment of liner companies. The final essay presents the liner companies' equilibrium condition of operating and financial leasing from a long-term perspective. We apply a prospect theory-based credit rating model to present the long-term willingness of financial institutions to provide financial leases to liner companies. Besides, we provided the optimal contract parameters for the slot purchase contract between NVOCCs and liner companies with insufficient shipping capacity. By comparing with the liner companies with sufficient capacity in the previous essay, our results indicate that the reduction of finance leases cannot significantly improve the balance between profit and repayment. Instead, a moderately excessive financial lease will help liner companies balance operations and financing. Additionally, it also assists liner companies in establishing their creditworthiness and competitiveness to improve future revenues.