The impact of ship size on its unit cost

Abstract

In this paper, two fundamental aspects, as well as their relationship, have been discussed; these are vessel costs and ship size. The use of mathematical in addition to empirical methods has been employed to determine the relationship that exists between unit costs of running a ship and the corresponding vessel size. Through data analysis it has been established that the ship unit cost is proportional to optimal vessel (OVs) raised to 0.701. In the context of such hypothesis we confirm the existence of economies of scale in operating large vessels. The positive cash flow continues to be present as vessels continue to enlarge their size until when the optimal point is reached. Then from this point shipping business tends to experience a total negative cashflow, which is obviously caused by diseconomies of scale. Likewise, it has been confirmed that the optimal vessel size is directly proportional to the voyage length. This means that the optimal ship size for short sea shipping cannot be appropriate for a long deep sea voyages.