The decomposition of secondhand ship price: An application of Hedonic regression model

This paper develops a Hedonic price model to measure the marginal values of asset attributes embodied in the ship price. In order to reflect the heterogeneity of the ship attributes, a Hedonic regression model is applied to study the effects of two key attributes, age and tonnage, on determining the price of a secondhand containership. In turn, two indices related to the tonnage and age cost are constructed accordingly. By observing the patterns of variations of the two indices over the past decade, some implications about the impacts of market condition and the advances in technology of shipbuilding on the secondhand ship prices are discovered. The unexpected downward trend of tonnage cost index from 2003 suggests that the benefit of technical progress in shipbuilding has greatly offset the rising cost burden caused by the higher steel price. Since 2003, on the other hand, the steadily decreasing pattern of age cost index indicates that the allowance for ship age on purchasing a secondhand containership has been increased while the demand of transportation in the shipping market is strong. Implicitly, the age cost index for the secondhand containership could be utilized as an indicator for judging the demand situation in the international marine market.