Container ship investment Decisions―Newbuilding vs second-hand vessels

Abstract

Ship investment is a crucial strategic issue for shipping companies as the container shipping industry is highly capital-intensive. In practice, a company's ship investment decision mainly concerns new shipbuilding and second-hand vessels. The investment of new container ships with advanced technology is high in cost and the payback period is long. Differently, the second-hand vessels' investment cycle is shorter, but there are certain drawbacks in loading capacity and maintenance. Therefore, it is significant to investigate the investment selection of new-building and second-hand ships in the container shipping market. Previous studies have analyzed this topic at aggregate or industry level. Few studies have attempted to reveal ship type preferences from observed individual data. Therefore, using the data from the Clarkson's World Fleet Register between 2000 and 2021, this study employs the Nested Logit model to analyze the container ship investment preferences, and explore the impact of different variables on decision-making from the perspective of individual companies. The empirical results suggest the higher substitution effect among alternatives within the same nest than that of crossing nests. Along with discussion on the effects of various factors, it discloses the higher preferences of larger types of vessels in responding to competitors' capacity expansion, especially the larger companies. Therefore, it is important to distinguish the larger companies' capacity expansion between responding to demand and competing with competitors, especially for those companies adopting follower strategies.