Capacity utilization and its determinants for a container shipping line: theory and evidence

Abstract

Under-utilization of fleet capacity appears to be a long-lasting issue in the container shipping industry. Also, there are some difficulties unsolved while measuring the ratio of Capacity Utilization (CU) of a container shipping line. From the perspective of an engineering approach, the slots capacity installed is the most popular way to represent the capacity output. Since the slots capacity installed lacks theoretical support, this study adopts an economics model to find the capacity output of a shipping line. Further, the derived CU ratio identifies the realized utilization of fleet capacity for a shipping line. Focused on the three largest container shipping lines in Taiwan, this article shows that their fleet capacity are totally under-utilized and the movement patterns of CU ratios are approximately identical. In addition, the variations of CU ratios also suggest that the enactment of Ocean Shipping Reform Act has contributed a positive effect on the capacity utilization of a container shipping line. Finally, by running a regression model to investigate the determinants of CU ratios, the result indicates that demand condition and global shipping alliance are two critical factors to improve the utilization of fleet capacity for a container shipping line.