Abstract
This study analyzes capacity expansion and ship choice decisions. Theoretically, we derive the probability of capacity expansion as a function of market and company attributes and characterize the impacts of these factors on expansion decisions. Empirically, we analyze ship investment and ship choice behaviour using binary choice and nested logit models based on ship investment data from major liner shipping companies over the period 1999 to 2009. Most expansion decisions are found to be market-driven, and large companies expand to maintain their market shares. In terms of ship selection, statistical results support the assumption that shipping companies decide on a new order or second-hand purchase before considering the ship size. Also, new orders are preferable to second-hand purchases. For new orders, the preference increases with ship size, and decreases with shipbuilding length and demand growth rate. For all ship types, the preference increases with a high and stable time-charter rate. For second-hand ships, handysize is the most preferable size. The substitution of new orders and second-hand purchases is possible, but not symmetrical.
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