Capacity retirement in the dry bulk market: A vessel based logit model

• We use a panel logit model to estimate the probability of scrapping dry bulk vessels.
• There is a positive relation between age and probability of scrapping a vessel.
• The relation between vessel size and scrapping probability varies across vessel classes.
• Scrapping probability falls with earnings, but rises with scrap prices, volatility and interest rates.

The paper investigates the effect of vessel specific and market variables on the probability of scrapping dry bulk ships. Using a dataset from 2012 to 2015, we find that the probability of scrapping increases with age, but that the relation between vessel size and scrapping probability varies across the different segments. In addition, while the relation between earnings and probability of scrapping ships is negative, bunker prices seem to affect only the scrapping rate of smaller tonnage. Scrapping probability also increases with an increase in interest rates, freight market volatility and scrap steel prices.