In Search of the Link between Ship Size and Operations

Abstract

Since 1990s the liner shipping industry has faced a period of restructuring and consolidation, and been confronted with a continuing increase in container vessel scale. The impact of these changes is noticeable in trade patterns, cargo handling methods and shipping routes, in short ‘operations’. After listing factors influencing size, growth in container ship size is explained by economies of scale in deploying larger vessels. In order to quantify economies of scale, this paper uses the liner service cash flow model. A novelty in the model is the inclusion of +6000-20-foot Equivalent Unit (TEU) vessels and the distinction in costs between single and twin propeller units on ships. The results illustrate that scale economies have been – and will continue to be – the driving force behind the deployment of larger container vessels. The paper then assesses the link between ship size and operations, given current discussions about the increase in container vessel scale. It is found that (a) ship size and operations are linked; (b) optimal ship size depends on transport segment (deep-sea vs. short-sea shipping, SSS), terminal type (transhipment terminals vs. other terminals), trade lane (East-West vs. North-South trades) and technology; and (c) a ship optimal for one trade can be suboptimal for another.