Unraveling the Link: Examining the Influence of Dollar Strength on Dirty Tanker Freight Rates

Abstract

This study explores the asymmetric relationship between the U.S. dollar index (DXY) and dirty tanker freight rates, a largely unexamined area within maritime economics despite the dollar’s profound influence on global oil prices and economic stability. Tanker shipping, the primary mode of transportation for global oil and a capital-intensive sector, plays a crucial role in oil supply chains. Given that oil prices are quoted in U.S. dollars, fluctuations in dollar strength directly impact oil costs, demand for tankers, and the operational costs of tanker shipping. This study employs an asymmetric model, recognizing that dollar value changes affect the tanker market differently depending on whether the dollar is strengthening or weakening. Findings reveal that decreases in the DXY drive up tanker freight rates, while increases do not correspondingly decrease rates, highlighting the unique non-linear dynamics between currency strength and freight costs. This asymmetric approach provides a more accurate framework for understanding these interactions than traditional linear models.

Keywords

• Asymmetric causality test
• Baltic Dirty Tanker Index
• Dollar strength
• Freight rate

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