THE TIME DIMENSION AND VALUE OF FLEXIBILITY IN RESOURCE ALLOCATION: THE CASE OF THE MARITIME INDUSTRY

The paper analyses empirically the time-varying properties of the spread between voyage and time-charter rates and presents evidence that these properties are directly related to the business cycle (market demand) of the maritime industry, to the expectations for the future market demand and to market volatility. Using a real options methodology, we demonstrate that the time-varying properties of the spread is the outcome of the strategic decision to time-commit company resources in the industry. It is shown that, during a market upturn (downturn) managers choose to commit company resources for a short period (long period), and thus, maintain flexibility (commitment) in better exploiting the upcoming business opportunities (protecting company resources from lack of business opportunities). Overall, the fluctuations of the time-varying spread, between voyage and time-charter rates, offer managerial insights in resource allocation that can better shape up chartering, budgeting and financial management decisions on the time commitment of resources in the maritime industry.