Monday, October 12, 2015

Container shipping: the bigger you are the harder you fall

Years back, I developed this simple formula in an attempt to formalize the relationship between ship size, fuel costs (p) and other variables, like cost of capital (z) and operating costs (w). As the latter costs remain grosso modo the same, while bunkers become cheaper, the optimum ship size on a certain route becomes smaller too. With the prevailing overcapacity in east-west trades and the need of carriers to reduce services, it is not at all unlikely –alliances notwithstanding- that the bigger vessels would be among the first to withdraw from service. HH