Archltects

@) 19?4 The Royal Institutton oI Naval

Transnort Capacitv and Economicsof Container Ships from a

Produ'ctionTheorYPoint of View
by Jomar Kuvist

NaDal Archilecls on Aplit 25, 197'1,Professor H' B' Benford' B 'S'E'

Readin Lonal(m dt a fieeling of the Royal Inslittt tion of
(Felloto) in the Chair-

S U M M A R Y : F a c t o r s i n f l u e n c l n g t h e t r a n s p o r t c a p a c i t y o l a s l r i p . a r e e x a m l n e d oI
{ , i growth
t h t h e a iin
d ospeed
l a t r a l and
s p o lslze
tmod ofe lcontainer
using
;i;;;&"tion $,"o"yl rrr" *"ri""" p"'.tide a theoreiical explanauon
;;ffiip;;
ship designs.
B y m a k i n g u s e o l a s h i p c o s t m o o e l i t i s p o s s i b l e t o d e t e r m i n e t h a t c o m b i n a t i o n o f a s h i p ' s scost
p e e alternative
d a n d c a p a coIi t ya{ Ileet
' h i c h as
y i eal dI'nc-
s
the minimum cost lor a gruun ,."n"p;Ji;"nJ. It i" "f"o possible to find the minimum
tion oI the transport capacity.
It is 6hown that the minlmum cost solution is not
The theory is illustrated by a case study lrom contalner traJrsportation.
always the optimum solutlon.

1. INTRODUCTION T - Round trip time in daYs

Z - Days off -hire Per Year
In the last decadelarge computer programs have been
introduced to solve ship design problems' These programs The round trip time comprises time for unloadingand
are, perhaps, the most advanced available in any industry loading,waiting time and time spent at sea' It is assumed
to-Oay. One may have the feeling, however,that these pro- 6at alttip's loading and unloadingtime per round trip is
gra*i have been used without basing their application on a proportional to the number of containers carried by the
more general theorY. ship.
Principles from production theory (Refs' 1,2) may he applied
in using ship designprograms for transport analyses(Ref. 3). rrnt =_- Ll . c- . c (3)
the applicition of the theory is quite general, but by way of
illustiition I am goilg to use examples from the container-
isation of the Norttr-Attantic trade. I want especially to study Tl = Days for loading and unloading per round trip
the selection of container ships' speed and capacity; also the L : Nutnber of containers loaded and unloaded in one day'
number of shiPs in a fleet.
The waiting time in port,T6, is assunredto be constant for
a given container line. when analysing clifferent routes,the
2. TRANSPORT CAPACITY OF THE SIIIPS wiiting time will be a function of the nunrber of ports of
call.
2.L A transport model
Time at sea dependsupon the sailing distance and the shlp's
The yearly transport capacity of a container ship on a par- service speed.
ticular route maY be exPressedbY:
(1) ^ s -: =P-=
T^ (4)
P = 2'C'G'A 24.V

p = Transport capacity per year, homewards and outwards T, = Time at sea in daYs
C = The ship's container caPacitY D : Sailing distance
G - Load factor V = Service speed
A - Numtrcrs of round triPs Per Year
A ship's transport capacity can now be expressed by:
The number of annual round trips dependson the sailing
2.c.c.(365-Z) (5)
time and the off-hire time: P_
4 . G . C* - D
365-2 ^d*tn,
^^ = (2) L
T
2.2 Application of the transport model
t The Norwegian Institute of Technology and The Norwegian
Ship Research Institute The use of the transport nrodel,may be demonstratedby a
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 TRANSPORT CAPACITY AND ECONONIICSOF CONTAINEII S/IIPS

3000 BETWEEN
o

(J

L
(J O = 1 0 00 0 0 c o n t ./ y e g r
E.

(J
4 00t I 2000

I = z

I
C)
L
iL
(J
;
tl E.
t!
z
30 0 0
H A M B U R,G
EXPRESS
,
6 r00(

i1
it
a
F
z
o
o
l,

ll
L
=
a 2000
il Fig.6. Different combinations of the number of ships and

il
tl
il r0 0 0 sEA-LANp
ship speed and capacity fulfilling the demand to
transport 100,000 containers per year

t1
MCLEAN
il z
it ui
tl L
= 6
ll
td
a
lL
IODAYS BETWEEN CALLS
t\ 40 o
q

I S H I P , SS P E E D V
, v
LrJ
(D

P a s s u s c o e f f i c i e n t r as function of container capacity

J
Fig. 5. Z t

a n d s p e e d . W h e n r is less than unitY, the transPort

c a p a c i t y i n c r e a s e s less than proPortionallY
o = 1 5 0 0 0c0= 2 0 5 5
o = 1 0 0 0 0c0. 1 3 7 0
o ' 7 5 0 0 0c = 1 0 2 7

0 ' 1 0 0 0 0 0c = 1 9 5 7
R : Fleet's transport caPacitY II
N : Number of ships I
I
P is as defined by equation (1)- II
KNOTS
Theoretically the fleet can transport more containers tltan
indicated in equation (28) if the ships are always fully loaded, S H I P ' s S P E E D ,V
but the transport market puts a restriction on the actual
number of containers carried. This is taken care of by Fig. ?. Isoquarts (curves of equal transport capacity) for
assuming G + I,such that the fleet's transport capacity and a container fleet given a sailing interval
the market demand will be equal:

R: Q (29)
If we know the demand for container transport and have
decided the sailing interval, the ship's container capacity is
Q - Annual market demand for the conrpany's container given. The loading factor is assumed to be a constant' Itr
transport. ihis case only the number of ships and their speed are the
decision variables in the prelintinary transport design.
Assume the annual transport market has a demand for
100,000 containers. Different combinations of fleets ful- To illustrate this point I have in Fig. 7 drawn isoquants for
filling this demand have been calculated as shown by Fig.6. different transport demands, given a sailing interval of ?
days. I have also given an example of a sailing interval
2.4.1 Sailing interuals in the liner lrade equal to 10 days, which requires bigger ships than a sailing
interval of 7 days.
In ilre liner trade it is common to have fixed sailing inter-
vals. To be able to meet such a requirement,we must have:
3. SHIP COST MODELS AND THE ECONOMIC PART OF
n 365 ( 30) THE PRODUCTION THEORY
* :
6.11
We are now going to analyse more closely the economic part
F : Sailing intervals of ilre transport system. These analyses cannot follow coln-
A : Annual numbers of round triPs. pletely the economic part of production theory,because the
latter has some special assumptions regarding factor
F r o m e q u a t i o n s( 1 ) , ( 2 8 ) , ( 2 9 )a n d ( 3 0 ) , w e g e t t h e f o l l o w i n g : prices. In most parts of production theory prices are kept
constant, which does not agree with the theory in shipping
Q.F economics. To discuss prices for a ship's speed and con-
t = (31)
2c.36b tainer capacity,I am going to apply a ship cost model.

t11
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 SIIIPS
TRANSPONTCAPACITY AND DCONOI'IICSO]" CONTATNER

M I L L .{ ,
NR = Net revenue
I - Total cost less capital cost
C= 2'll0
U
a : Depreciation rate
F
:
a 20 I - Building Price
o
(J

a In this case we have assumed that the transport demand is

not influenced by ship speed. If the owner wants to maxintise
F

his profit with respect to ship speed, he must have:

F

dI
$ $ e : | u e * "dv
(38)

The left hand side is the marginal revenue with respect to

speed which shoulclbe equal to the rnarginal cost with
respectto speed.
We know from experience that the cost increases rapidly
wiilr increasing speed. By using the computer rnodel,I have
found the marginal cost with respect to speed to be as indi-
cated by the curve shown in Fig. 13.

OAYS BE-
WEENCAL
F " 5d v
F=7d.
C)

)
u)
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(J

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F i g . 1 2 . T h e t o t a l transport cost for different sailing
u
intervals UJ

'Portfolio selection Model of

victor Norman has in his paper
ShippingBehaviour', (Ref. 5), pointed out that the risk in the
tani<itrif business and the freight revenue do play important
parts in ttre decision of contracting tankers even if full
competition exists.
Quite a number of container analyses are based on the
assumptions of perfect conrpetition. This is so because
these inalyses minimise the average cost ald do not take
the freigh[ revenue into account. This is correct iI the lines
are chaiging an FAK-rate for all the containers but is not
true to-day on most of the lines,because the conlerence
members use rate differentiation.
3.4. t SPeedand freighl reuenue
Comparing the speeds in Fig.10 with those of actual con-
, i 1
I tainer shifs, my estimates are too low. The explanationfor
lr
this is partly found in the rate differentiations used by liner
't' conferences.
h
when there are different rates for various commodities, it
i
is profitable to try and obtain container loads with a high
rate. To attract high paying goods one has to offer some
advantagescompared to the other members in the confer-
ence.
One way of obtaining this is by high speed. A shipper will
prefer a short transit time the advantageof which is clearly
shown in Ref. 13.
Let us say that the container firm's treight rate is a func-
tion of the ships' speed. The net revenue can then be ex-
p r e s s e db y :
NR = T(v)' Q -U(V) -a' I(V)
Fig.13. Calculation of optimum speed for a liner fleet
competing in a liner conference, assumitrg a fre-
quency of call equal to 7 daYs
V^ is the speed which gives the lowest average cost when
100, 000 containers with a sailing ilterval of
trinsporting
? dayl. With perfect competition tle ntarginal rate will be
nil because the rate is independent of ship speed'
If the marginal revenue has the characteristics shown by
the curve in Fig. 13 the most favourable speed is Vr, at
wSich point maiginal revenue is equal to marginal cost. The
container ship's speed is now in closer agreement with the
speed of existing container ships.
This analysis shows that the behaviour of container conr-
panies is rational in the selection of speed, being members
of a conference. The analysis also shows that the increase
in speed does not cost too much in this case. The situation
is, ltowever, quite clifferent following the increase in fuel
prices. The influence of this increase has been shown in
Ref. 16.
3. 5 The next stage in a preliminary transport analysis
T'he analyses and the models above are an abstraction oI the
real world,but they give us valuable information in the early
stage of transport analyses. In particular the use of aggre-
gated input data in the models makes it convenient to apply
(37) them.

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the potential it straints.Shipsizeisoftenlimitedtothatwhichwillenatrle
A secondbenefit of Dr. Kuvas's method is a compalry to offer a weekly service given the
cargo volunte
on the com-
trolds for reducing the volume of work imposed itcancapture.Ilthislimitationcanbeovercomebyslraring
And, speaking of computers, one must always re-
ill;;.
'me*ber url,*g".nentsitcanallowshipsizetoincreasetosignifi-
thatlhe aciual desigri decisions will be made by a cantl/more than would otherwise be feasible'
should be
t",un,^nbeing' Which means that the computer
designs, complete
Jirectec to offer up a menu of alternative Forexatnple,ontl.reroutebetweentheFarEasta'rrdNortlt
the ships are
of merit' West nurope, TRIO operate a system where
o,ittr,tu-urical values of one or more measures sharing arrange-
maker can then mentally add the intangible owned by individual companies but there is a
The clecision
o f f e r a w e e k l y service by
considerationsbefore making his selection' nrent whereby e a c h c o m p a n y c a n
the largest
taking space on any ship. This service uses
Aslrecontinueshisdevelopmentoftlrervorkshowninthe containelship yet built and the sharing arrangement
helped
study the impact of.a.change
;;p;;,i-suggest that Dr. Kuvas to make this Possible.
inonekeyassumption.Irefertohisassumptiontlratloading
is not practical
anc|unloadingtimewillbeproportionaltothenumberofccln- In trades where amalgamations or sharing
unrealistic.
tainers carried by the strip. That would often be the market constraints must be imposed and it becomes
also
The owner who invests in a high-capacity ship sholld necessarytoconsiderfleetsizeandthroughputofthesystem
be wise enoughto invest in appropriate shore facilities' aswell""tt'"clraracteristicsoftheindividualships.By
has given
ih"t. indeed,is the principal message Dr' Erichsen suitablenranipulationthemarketconstraintcanbeexpressed
us in Ref. 9. in terms of fllet size, throughput and ship characteristics'
may be opti-
This def ines a region within which the system
presents an it will be
Mr.G. H. Fuller, R.C-N-C. (Fellow): The author mised and if the i-rarketing constraint is binding
level of numeracy in the region'
ln-ut"ging attempt to improve the found that the global optimum lies outside the
However, it appears that, as with most
Jupioy-""nt"of ships. obviously be of
a sound The general approach used in the paper could
ec^onomists,this first stage although presented as gr""I benef it in evaluating the effectiveness of shipping
sys-
basisforreallifeplanningisonlythebeginningoftheques-
tems.Itdoesrequire,however,thatalltherelationships
tion which is Posed in Section 3' 5' the basic vari-
within the system are expressed in terms of
to con-
In the application of any Life Costing it is important ables. This raises our seconcl comment which
is concerned
ship size'
sidertheentiresystem,whichinthiscaseshouldalsoin. with the dependence of the handling rate on
clude human ."""iion to damaged cargoes against service In equation (3) the handling rate is expressed
as a constant'
speedandtheunquantifiablemarketreactiontosuchresults L. Later, in Section 2.2. [., the handling rate
is considered
random
as a'weekly' deparfure against one which has a more as a variable though still independent of ship size'
For
pattern against the calendar. generality we shail express the handling rate as
f(C)' We
of C
Itmaybeworthemp}rasisingthattheprofitofthesemodels o""u-" tirat f(C) is a monotonically increasing function
expressed as
inanyfieldisverymuchmoreinthesensitivityanalysis though we do not know its form' P can now be
to
leading to the'what if' options rather than being expected
give ateterminate answer which very soon is proved in- P _
2 . G . C . ( 3 6 5- z ) ( 3e)
[orrect due to the points discussed above' The author's 4GC+T.r+ D
views on this would be welcome. f(c)
"
24.V
per-
Mr.I. L. Buxton,B.Sc-, Ph.D. (Fellow): Mr' Kuvas has
Differentiating with respect to C we get
formedausefulserviceindrawingattentiontosomebasic
principlesunderlyingtheselectionofcontainershipsizeand
speeO.While "o-" of ttt" conclusions may also be deduced a P: 2 G ( 3 6- 5z \ ( , - n o " / r t c l - c t ' t c l \ \ (40)
intuitively or from simple arithmetical ca-lculations,the ac T2 \ \ f2(C) ll
theory is helpful in providing the basic explanations'
of g{9
Compared with typical curves showing the economies Where f'(C) is used to denote
scate for bulk vessels, the very small eff ect on transport ac
is
cost of large variations in container ship size or speed
r" is now the form
remarkable.Wouldtheseresultsbeclrangedifbothcon-
struction and container handling costs were directly included,
of
as studies of these tend to show very marked economies ,1 Ti
-
f(c) - cf'(c)
scale and throughput,e.g. National Ports Councll Bulletin "
f n : - -
T f(c)
N o . 4 ,1 9 7 3 ?
The calculation of optimurn speed is also aff ected bv inven- It is quite clear that the form of f(c) is of prime importance.
tory costs, that is interest charges on the cargo in transit'
as
Container freight is usually of high value, sometimes
valuableastheshipitselfintotal(untikebulkcargo),and
REPLY
may be unique "oniignrrruntswith high costs associated with
AUTHOR'S
stow transit. what sort of effect on optimum speed would
interest I agree with Mr. Goss that the cargo handlirtg time sltould be
occur at a cargo value of say t500 per tonne,at an
invlrsely proportional to the number of container cranes
rate of say 20"t"?
fitted to the berth. This requires, however, that the number
C h a p m a n ' s c o n t a i n e r s h i p m o d e l i n R e f . l 0 i s u s e f u l l o r s u c l r of cranes is taken into the model as a decision variable.
studies,but it is not cleai whether the author's cost levels Dr. Erichsen has done such an analysis in Ref.9, but I ltave
have been updated to current levels, now about two or three assumed ilrat the terminals and their cranes are already
times highei. Here again,would the form of the curves be installed. In this case it is realistic to say that the cargo
affected bY such a difference? handling time for a container ship should be proportional to
t h e n u m b e r o f c o n t a i n e r s i + "c a r r i e s .
Mr.Kuvas'spaperhasmadeahelpfulcontributiontoa
greater undeisianding of some of the factors influencing Professor Thorburn's analysis in Ref . 14
(page 59) uses a
tr ansport. sirnilar formula to that given in equation (5) in this paper'
Professor Thorburn's main interest is to find the optimal
Mr. S. Gilman and Mr. ". p.lylltiems: Two commetrts are transport distance, while I am more interested in finding the
lly
offered on the valuable and interesting paper presented optirnum size and speed of a ship, given a certain transport
Mr. Kuvas. distance. However, some of the findings in these two analyses
con- are identical.
The first concerns the powerful inlluence of marketing

118
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