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On cost-efficiency of the global

container shipping network
a a a b
Dongping Song , Jie Zhang , Jonathan Carter , Tony Field ,
a c a
James Marshall , John Polak , Kimberly Schumacher , Proshun
a a
Sinha-Ray & John Woods
a
Complex Systems Modelling group (COSMIC) , Department of
Earth Science and Engineering, Imperial College , London SW7
2AZ, UK
b
Department of Computing , Imperial College , London SW7 2AZ,
UK
c
Department of Civil and Environmental Engineering , Imperial
College , London SW7 2AZ, UK
d
Complex Systems Modelling group (COSMIC) , Department of
Earth Science and Engineering, Imperial College , London SW7
2AZ, UK E-mail:
Published online: 21 Feb 2007.

To cite this article: Dongping Song , Jie Zhang , Jonathan Carter , Tony Field , James Marshall ,
John Polak , Kimberly Schumacher , Proshun Sinha-Ray & John Woods (2005) On cost-efficiency
of the global container shipping network, Maritime Policy & Management: The flagship journal of
international shipping and port research, 32:1, 15-30, DOI: 10.1080/0308883042000176640

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 MARIT. POL. MGMT., JANUARY–MARCH 2005
VOL. 32, NO. 1, 15–30

On cost-efficiency of the global container

shipping network

DONGPING SONGy*, JIE ZHANGy, JONATHAN CARTERy,

TONY FIELDz, JAMES MARSHALLy, JOHN POLAK§,
KIMBERLY SCHUMACHERy, PROSHUN SINHA-RAYy and
JOHN WOODSy
yComplex Systems Modelling group (COSMIC), Department of Earth
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Science and Engineering, Imperial College, London SW7 2AZ, UK

zDepartment of Computing, Imperial College, London SW7 2AZ, UK
§Department of Civil and Environmental Engineering, Imperial College,
London SW7 2AZ, UK

This paper presents a simple formulation in the form of a pipe network for
modelling the global container-shipping network. The cost-efficiency and
movement-patterns of the current container-shipping network have been
investigated using heuristic methods. The model is able to reproduce the
overall incomes, costs, and container movement patterns for the industry as
well as for the individual shipping lines and ports. It was found that the cost
of repositioning empties is 27% of the total world fleet running cost and that
overcapacity continues to be a problem. The model is computationally efficient.
Implemented in the Java language, it takes one minute to run a full-scale network
on a Pentium IV computer.

1. Introduction
Since the introduction of the maritime container in the 1960s, liner shipping went
through a high growth phase, almost independent of the world economy. During the
seventies world container port throughput (traffic) expanded by an average of 22%
p.a. However, between 1980–1995, the world containerized trade growth slowed
down significantly and registered a more modest rate of 9.6% p.a. [1]. More recently,
the growth was even lower at 7.3% p.a. between 1995–2000 [2].
Two important events took place over the past two decades or so. The container
shipping market has become globalised. Shipping lines face intense competition due
to shippers’ multiple choices for both direct shipment and, in particular, tranship-
ment [3]. Port authorities also face intense competition from both geographically
nearby ports and, due to inter-modal transport, far-away ports. As a result of
globalization, ports are regarded not only as a place that handles vessels and
cargo, but also an element embedded in a value-driven chain system [4].
The second important event is over-capacity of the container-shipping network.
The global container shipping market was over-tonnaged for much of the 1980s

*To whom correspondance should be addressed. e-mail: Dongping.Song@imperial.ac.uk

Maritime Policy & Management ISSN 0308–8839 print/ISSN 1464–5254 online # 2005 Taylor & Francis Group Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0308883042000176640
 16 D. Song et al.

and 1990s. The level of excess capacity depends on the rate of growth of contain-
erized cargo, on the speed with which existing operators introduce new, and larger,
vessels into service as well as on the level of exits of operators from the market.
Liner shipping is a business with high capital cost. As overcapacity drives down
freight rates, container shipping is currently characterized by low profitability with
all the indications showing that the industry is likely to enter a period of major
restructuring of operations. To remain competitive, ports, particularly transhipment
hubs, may find themselves in a vulnerable position as their traffic flow is more
volatile.
In order to survive competition and gain more business, both shipping lines
and port authorities are forced to adopt innovative, productivity enhancing and
cost-cutting strategies [5, 6]. They should see themselves part of a global shipping
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market, and optimize short-term operational level tactics while defining long-term
investment strategy in the global context. To this end it is imperative for them to:
. quantify the extent of the over-capacity of the world container shipping
network;
. examine the effect of repositioning empty containers;
. identify gateway ports and transhipment hub ports, and their roles in the
network.
The main objective of the paper is to develop a reliable model that assigns world
trade volumes to the container-shipping network so as to examine the cost-efficiency
and trade pattern of the shipping network.
The mathematical formulation of the problem is presented in section 2. Details of
how shipments are assigned to the container-shipping network are explained in
section 3. The trade scenario and the shipping network are described in section 4.
Cost-efficiency measures (such as utilization) and trade patterns are analysed in
section 5. Use of the model is discussed in section 6. Finally, conclusions are
drawn in section 7, where we also put forward possible directions for future work.

2. Problem formulation
The container shipping business has two components: the physical shipping network
and the trade demands. The shipping network is composed of ports, or nodes, and
shipping services, links between ports, provided by shipping lines. A trade demand
represents a requirement that a certain volume of cargo be transported from the
country of origin to the country of destination.

2.1. Terminology
Discharging fraction: the number of containers to be discharged at a port divided by
the vessel capacity.
Loading fraction: the number of containers to be loaded at a port divided by the
vessel capacity.
Move: the process of shipping a container by a vessel from one port to another. It
involves two movements.
Movement: the act of transporting a container between a port and a vessel, also
known as a lift.
TEU: twenty-foot equivalent unit.
 On cost-efficiency of the global container shipping network 17

Throughput: total number of movements into or out of a port, also known as port
traffic.
Trade: a demand for moving containers from one country to another.
Voyage: a round trip journey.

2.2. Notation
p, q : a port in the shipping network.
,  : a country, which can be simply regarded as a set of ports that are physi-
cally located in the country. Countries are disjoint and completely cover
all the ports.
s : a shipping service represented by an ordered list of ports (termed port
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rotation, i.e. [ p1, p2, p3, . . . , pns ], where ns is the number of ports of call in a
voyage). Some ports may be called at several times in a voyage. To
simplify notation, s also represents the index list of the corresponding
ports.
i, j, k : index of port of call in a service.
[i, j ] : a sequence of port indices in a service, starting from i-th port of call and
ending with j-th port of call.
Cs : the annual capacity of service s in TEUs. It is defined as the product of the
sum of TEU capacity of all vessels of the service, and the number of
voyages in a year.
p(s, i) : a mapping that gives the port of the i–th port of call of the service s.
D : trade volume in TEU from country  to country .
DA  : the part of D that has been assigned (shipped).
DU
 : the part of D that has not been assigned, DU A
 ¼ D
D .
J : total cost for assigning DA  into the shipping network.
ysij : direct shipment volume using service s, where the i-th port of call is the
port of origin and the j-th port of call is the port of destination.
zsi11js12i2 j2 : transhipment volume using service s1 and s2, where the i1-th port of call of
s1 is the port of origin and the j2-th port of call of service s2 is the port of
destination, the j1-th port of call of s1 and the i2-th port of call of s2 being
the one and the same port, i.e., the transhipment port.
csij : the cost (rate) of moving one TEU from the i-th port of call to the j-th
port of call using service s, where i 6¼ j.
csii : the transhipment fee at the i-th port of call, service s being the first leg.
Assumption is made that the transhipment fee depends only on the first
leg service.
fi s : the flow level, or volume, from the i-th port of call to the next one in
service s. If i ¼ ns, it represents the flow level from the last to the first port
of call since port rotation is a closed loop.
To investigate the cost-efficiency of the current shipping network, all trade
demands should be assigned into the shipping services as much as possible and in
such a way that the total cost is minimized. The problem can be formulated as
follows. The first objective is to minimize the total unassigned trade volume.
X U
D
 : ð1Þ


 18 D. Song et al.

If the total unassigned trade volume is zero or cannot be minimized further, then the
second objective is to minimize the total cost
X
J
 ð2Þ



s.t.
D
 ¼ DA U

 þ D
 for any country-pair, ð3Þ

fks
Cs for k ¼ 1, 2, . . . , ns and any service s, ð4Þ

where
X X X X X
csij ysij þ
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J
 ¼
s ½i, js, pðs, iÞ2
, pðs, jÞ2 s1 6¼s2 pðs1 , i1 Þ2
pðs2 , j2 Þ2
X
 ðcsi11j1 þ csj11j1 þ csi22 j2 Þzsi11js12i2 j2 ð5Þ
pðs1 , j1 Þ¼pðs2 , i2 Þ
X X X X X X
DA

 ¼ ysij þ zsi11js12i2 j2 ð6Þ
s ½i, js, pðs, iÞ2
, pðs, jÞ2 s1 6¼s2 pðs1 , i1 Þ2
pðs2 , j2 Þ2 pðs1 , j1 Þ¼pðs2 , i2 Þ

X
fks ¼ ysij  If½k, k þ 1  ½i, jg
½i, js
XXX X
þ zss
i1 j1 i2 j2  If½k, k þ 1  ½i1 , j1 g
2

s2 6¼s i1 2s j2 2s2 pðs, j1 Þ¼pðs2 , i2 Þ

XXX X
þ zsi11js1 i2 j2  If½k, k þ 1  ½i2 , j2 g ð7Þ
s1 6¼s i1 2s1 j2 2s pðs1 , j1 Þ¼pðs, i2 Þ

Where I{.} is an indicator function, i.e. I{true} ¼ 1 and I{false} ¼ 0.

Inequality, equation (4), reflects the capacity constraints at each leg for each
shipping service. Equation (5) represents that the total cost for assigning one
country-pair demand consists of two parts: the costs by direct shipments and the
costs by transhipments. Equation (7) gives the actual flow level at each leg of the
shipping service.
The problem is to find the optimal {ysij , zsi11js12i2 j2 } to minimize equation (1) first then
(2), subject to the constraints (3) and (4).

3. Method
To find the optimal solution of the problem (1–7) by analytical methods is very
difficult due to the complexity of the solution space and the strong interactions
between constraints given in (3–7). Instead, this paper presents a heuristic method
to find an efficient, local optimal solution.

3.1. Truncation of solution space

The solution space is truncated to make the problem tractable. Note that any trade
demand is specified by the origin country, destination country and the trade volume.
Intuitively, the optimal way to assign the trade demand into the shipping network
appears as follows. Firstly, choose the cheapest shipping service that links the origin
 On cost-efficiency of the global container shipping network 19

and destination countries and assign the trade volume subject to the service capacity
constraints. Secondly, if there is still some volume left unassigned in this trade
demand, then the next cheapest shipping service will be chosen to be assigned the
remaining volume. This procedure continues until all the volume has been assigned
or no more feasible shipping services are available.
Now suppose that there is a given sequence of trade demands. If we follow
the above procedure for each trade demand, then all trade demands can be assigned
into the existing shipping network in a deterministic way. In other words, the
solution space is truncated and equivalent to the permutations of N objects, where
N is the total number of trade demands. This truncation greatly reduces the
complexity of the solution space and leads to a way to develop effective heuristic
methods that may provide locally optimal solutions. The disadvantage of this
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truncation is that the global optimal solution may be excluded from the simplified
solution space.

3.2. Combinatorial optimization problem

Although the solution space of the problem (1–7) has been reduced, it becomes a
typical combinatorial optimization problem, which is very difficult if N is large. For
example, in the scenario given in section 4, there are more than 5000 country–
country trade demands; it follows that the size of solution space is greater than
5000! (>1012000). Thus, it is impossible to do any exhaustive search in the whole
solution space. Therefore, we turn to heuristic methods to solve this problem.
In the remainder of this section, we address several priority rules for sequencing
trade demands and then integrate these rules into an iterative heuristic method.

3.3. Priority rules for sequencing trade demands

Note that the first objective of performing assignment of trade volume is to
minimize the total unassigned volume. It is probably beneficial to first assign
those trade demands that have a very limited number of available shipping services.
This yields a priority rule termed ‘the demand with the fewest available shipping
services first’.
From the shipping line’s point of view, customer demands with higher price or
larger volume warrant higher priority for booking slots. Correspondingly, two more
rules can be derived and termed ‘the most expensive demand first’ and the largest
volume demand first’.

3.4. Heuristic method

After a priority rule is selected, the trade demands can be sequenced and assigned.
However, it cannot be known in advance whether all trade volume can be assigned
completely or the unassigned volume can be further reduced. To deal with this
situation, an iterative procedure is introduced. Clearly, the unassigned volume is
caused by unavailability of shipping service capacity. Intuitively, if the trade demands
that cannot be assigned completely are given higher priority, then it might be possible
to reduce the total unassigned volume. A priority rule, e.g. the largest unassigned
volume demand first, is used to sort those unassigned trade demands.
The iterative heuristic method is:
Step 1. Sequence the trade demands by the priority rule. Set the initial iteration loop
index l ¼ 1 and set the maximum iteration number allowed (denoted by
Lmax).
 20 D. Song et al.

Step 2. Assign the sequenced trade demands into the shipping network one by one in
the following way:
(i) Set i ¼ 1.
(ii) Select the i-th trade demand.
(iii) Assign this trade demand into feasible shipping services by the
cheapest first rule.
(iv) If i<N, then i ¼ i þ 1 and go to (ii).
Step 3. Evaluate the solution to obtain the total unassigned volume, total cost and
the list of trade demands that cannot be assigned completely (called unas-
signed trade list).
Step 4. Record the best solution up to now, which has the minimum total
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unassigned volume and minimum total cost.

Step 5. If total unassigned volume is zero or the iteration loop l > Lmax, then go to
step 7.
Step 6. Sort the unassigned trade list by the largest unassigned volume demand first
rule. Create a new solution with the sorted unassigned trade demand listed
first and other trade demands following the same order as in the last solution.
Go to step 2.
Step 7. Return the optimal solution and stop.
An example is given below in figure 1 to illustrate how (iii) in Step 2 works.
Assume that there is a trade demand d with remaining (unassigned) volume vr
from origin country
to destination country , and the next cheapest shipping
service for this trade demand is s. Its port rotation is depicted in figure 1(a), and
port index and current flow level (load factor) on each leg are histogrammed in figure
1(b). The service calls at two ports in country
and the first port of call is chosen to
be the loading port.
To assign the trade demand d into service s from port A (the first port of call) to
port E (the fifth port of call), we need to calculate the maximum feasible capacity on
this part of the journey, i.e.

minfC s  fi s ji ¼ 1, 2, . . . , 4g,

B D

A C destination
E
country

G F
origin country

(a) Port rotation of a shipping service s

Ports A B C D E F C G A

Index 1 2 3 4 5 6 7 8 1
(b) Capacity and flow level at each leg in port rotation

Figure 1. An example of shipping service with port rotation and flow levels.
 On cost-efficiency of the global container shipping network 21

where Cs is the annual capacity of the service s and fis is the (assigned) flow level
between the i-th and (i þ 1)-th ports. This guarantees that the inequality (4) is
satisfied. Then the direct shipment volume carried by service s from the first port
of call to the fifth port of call is:
ys15 ¼ minfvr , minfC s  fi s ji ¼ 1, 2, . . . , 4gg:
After this assignment, the unassigned volume in d and flow levels in service s must be
updated.
In the case of transhipment, the maximum feasible capacity in both the first-leg
and second-leg shipping services should be calculated, and the maximum feasible
transhipment volume is taken to be the smaller of the two.
For a given trade demand, the candidate shipping services, including direct ship-
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ments and transhipments, can be ordered by cost (rate). Therefore, Step 2 in the
above heuristic procedure uniquely determines the set of direct shipping volumes and
transhipment volumes for all services {ysij , zsi11js12i2 j2 } for a given sequence of trade
demands. Then the total cost can be evaluated by equation (5).

4. Scenario description
This section describes the data sources and the scenarios used in this paper.

4.1. Container shipping network

There are over 7000 container-carrying vessels deployed worldwide with a total
shipping capacity of 7.3 million TEUs. However, a significant number of these are
small vessels, such as ferries and barges, and consequently they have a small impact
on the general container traffic pattern. Therefore, we focus on the shipping network
consisting of those vessels with regular shipping services (fixed schedule). It is a
snapshot of all the scheduled shipping services as published on Containerisation
International online in August 2002 [7]. It has 4019 vessels and visits 1001 ports in
186 countries, providing 1521 shipping services from 451 shipping lines. The bulk of
this data was purchased from Containerisation International. The time-tables
(schedules) of shipping services have been verified and adjusted using a realistic
port distance table purchased from Veson Inc. The total carrying capacity of the
4019 vessels is 6.0 million TEUs.
In this paper, the shipping network is assumed to be fixed for the whole year.
In reality, a shipping service may change from time to time due to introduction,
redeployment or decommissioning of vessels.

4.2. Trade demand

An annual country-to-country trade demand matrix is generated based on MDS
Transmodal Ltd’s container trade databank for the year 1999. The raw data of
trade volume is in weight (tonnes) or in value (000’s Euros) for thousands of com-
modity types as specified by SITC (Standard Industrial Trade Classification).
Transmodal (MDST) provided us with unitization factors that can be used to derive
the trade volume in TEUs. This paper therefore uses volumes in TEUs for each trade
demand. Note that the trade data is for the year 1999 and the shipping network is for
the year 2002. Since trade data for the year 2002 is not, at time of writing, available,
we then increase the trade volume by 12% in an attempt to reflect an increase in
trade volume for the last three years.
 22 D. Song et al.

Because this trade data also includes containers transported overland, some trade
volumes are overestimated between neighbouring countries. For example, there are
6 174 001 TEUs from Canada to USA and 6 225 903 TEUs vice versa. A large por-
tion of the above trade volumes is actually transported by road or rail.
To filter out those volumes that are transported by means that are not represented
in the model, the following adjustments are performed. The total trade volume,
either import or export, of a country is capped by the annual flow capacity of this
country (defined as the sum of vessel capacities whenever a vessel calls at this country
from another country in the whole year) multiplied by a ratio, which is tentatively
set to 0.6. Therefore, the annual flow capacity implies the maximum volume that
can flow into or out of a country. The trade volumes between USA and Canada
are further reduced by 80% due to their specific geographic proximity. In addition,
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the country pairs without any direct shipment service or transhipment service
are ignored. After these adjustments, the total number of trade demands, origin-
destination pairs, is 5565 with a total trade volume 72.6 million TEUs.
There is said to be a trade imbalance between two countries if the import
and export volumes are not equal. In the scenario that we are investigating,
the total imbalance volume, defined to be the sum of imbalance volumes for all
country-pairs, is 27.1 million TEUs. A trade imbalance necessitates repositioning
of empty containers. Drewry Shipping Consultants estimates that there are 52.5
million port handlings of empties p.a. worldwide [8], which implies about 26 million
moves of empty containers.
To account for container traffic due to repositioning of empty containers, the
following steps are taken: first, a 10% increase is assumed in the dominant direction,
and secondly the trade demands are rebalanced by creating empty container move-
ment demands so that the total volumes in both directions are equal between any
country pairs. It is the rebalanced trade demands that are assigned to the same
shipping network.

4.3. Cost calculation

The MDST Lincost Model [9] is adopted to calculate the vessel running cost. It
includes the bunker cost, auxiliary cost, lube cost, capital cost, crew cost, insurance
cost, maintenance cost, box cost and port cost. The port cost is composed of three
parts: stevedoring (lifting) charge, fixed charge per vessel call, and vessel capacity-
related due. In this paper it is assumed that stevedoring charge is $100 per lift, fixed
fee is $1500 per vessel call and $1 per TEU for vessel capacity related due. A load
factor of 0.8 is assumed for all services. The shipping cost (freight rate) that a
shipping line charges a shipper is assumed to be the vessel running cost multiplied
by a profit margin ratio. This factor is utilized to reflect the missing costs such as
management cost. In this paper a ratio of 2.0 is used, equivalent to an overhead cost
of 100%.

5. Results
Of particular interest in the cost-efficiency and movement-pattern of the container-
shipping network as can be predicted by the present model. This may be divided into
two aspects. The first is general model behaviours:
. total unassigned volume
. shipping lines’ total running cost, income and profit margin
 On cost-efficiency of the global container shipping network 23

. total box moves

. ports’ total income
. ports’ total throughput (total number of container-liftings)
. shipping services’ utilization
. percentage of total transhipment movements.
The second is what the model produces for typical individual entities (e.g. ports and
shipping lines) with regard to cost, income, box moves, throughput, utilization and
transhipment percentage, etc.
The model was implemented in the Java language. Initial experiments showed that
the priority rule ‘the demand with the fewest available services first’ performs better
than the rules ‘the largest volume demand first’ and ‘the most expensive demand
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first’. Therefore, in this paper we only present the results using the rule ‘the demand
with the fewest available services first’. The maximum number of iteration loops was
set to 10, in which case the program requires about one minute CPU (central pro-
cessing unit) time on a Pentium IV computer.

5.1. Overall incomes, costs and movement patterns

The heuristic method has been applied to the scenario described in section 4. Table 1
shows the results for total trade volume, total unassigned volume, shipping line total
income, shipping line total running cost, empty repositioning cost, shipping line total
box moves, port total income, port total throughput, shipping service utilization and
percentage of transhipment movements.
It can be seen that the percentage of unassigned volume is just under about 5%.
This implies that that assigning all trade volumes to the shipping services completely
is difficult. However, the percentages are quite low and possibly due to exclusion of
some services (e.g. tramp services). The shipping lines’ total running cost in table 1
only represents the fleet running cost. In reality other costs such as management cost
are quite significant and should be included.
According to Drewry Shipping Consultants [8], box moves are 103.9 million
TEUs in the year 2002. The results in table 1 give 121 million moves for the reba-
lanced trade scenario. It may be that rebalancing flows between every pair of two
countries overestimates empty box moves.
As far as the ports are concerned, the throughput is accumulated and based on
both laden and empty containers. In table 1, the ports’ total throughput is 243

Table 1. Overall incomes, costs and container movement-patterns.

Income/cost or throughput related variable Rebalanced trade scenario with empties

Total trade volume (million TEUs) 107.8

Total unassigned volume (million TEUs) 4.9
Shipping line total income ($m) 82687
Shipping line total running cost ($m) 54969
Empty repositioning cost ($m) 14914
Total box moves (million TEUs) 121.3
Port total income ($m) 24590
Port total throughput (million TEUs) 243
Shipping service utilization 74.1%
Percentage of transhipment movements 15.2%
 24 D. Song et al.

million TEUs; The CI Yearbook [2] estimates world port traffic in 2001 to
be 236.7 million TEU. Average service utilization is 74%, comparing to Drewry’s
historical data: 81% for the year 2000 and 71.1% for the year 2001 [10].
The percentage of transhipment movements is much less than the historical data
26% [11]. This can be explained as follows. In our model, lifting charge per TEU at a
transhipment port is 70% of normal rate. Since four lifts are required to finish one
transhipment trade, the lifting cost of a transhipment is much more expensive than
that of a direct shipment. Therefore, transhipment is relatively less competitive
against direct shipment.
In summary, the above results, compared with available historical data, appear
reasonable and also demonstrate that the heuristic assignment method does minimize
the total shipping cost by reducing container movements and by efficiently using
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shipping service capacity.

5.2. Incomes, costs and movement patterns for typical individual entities
The results on incomes, costs and container movement patterns (including fleet
capacity, total box moves carried, total transhipment moves, port fixed cost, port
lifting cost, total running cost, total income and utilization) for the ten largest
shipping lines by vessel fleet capacity are given in table 2. Here the cost of
repositioning empty boxes is assumed to be redeemable by the shipping lines.
table 2 is sorted by the shipping line’s vessel fleet capacity (the second column),
including chartered vessels.
In table 2, port fixed cost is the cost that the shipping line must pay to ports
even if there are no containers lifted. Port lifting cost is proportional to the total
number of lifts (loads/unloads) at ports. Total cost represents the vessel running cost
including port dues. From table 2, one can derive the average number of moves and
average income per TEU slot p.a. for each shipping line (shown in figures 2 and 3).
The average number of moves per TEU slot p.a. in 2001 was 15.0 [10]. Here the
result shows that the ten biggest shipping lines all achieve above-average perfor-
mance. This reflects the fact that the running cost per slot is lower among the biggest
companies owing to the deployment of larger vessels.

Table 2. Incomes, costs and movement patterns for the top ten shipping lines by capacity.
Fleet Total Tran. Port Port Total Total
Shipping capacity moves moves fixed lifting cost income Utilization
line (0 000TEU) (0 000TEU) (0 000TEU) cost ($m) cost ($m) ($m) ($m) (%)

Maersk 652 17779 6923 112 3556 6709 11563 80

Sealand
P&ON 382 7334 2968 58 1467 3218 5491 74
MSC 380 8403 2403 74 1681 3470 5791 70
APL 251 7318 2240 40 1464 2709 4578 72
Cosco 219 4098 233 39 820 1889 2720 57
Evergreen 216 3740 1101 28 748 1663 2691 57
Hanjin 208 4024 422 24 805 1795 3103 73
CMA CGM 176 3393 868 28 679 1460 2371 60
NYK Line 174 3806 1112 25 761 1592 2741 73
K Line 172 4112 972 27 822 1664 2836 73
 On cost-efficiency of the global container shipping network 25

The incomes, costs and container movement patterns (e.g. total number of lifting,
transhipment lifting, fixed income, lifting income and total income) for the top
20 ports are given in table 3, which is sorted by total throughput (i.e. total number
of lifting – the third column).
Containerisation International online provides historical data on port throughput.
The top 20 ports in the world-ranking table for the year 2002 are listed in table 4.
There are 17 common ports that appear in tables 3 and 4. The ranking orders also
show close resemblance. However, there are a few discrepancies between table 3 and
table 4. The model seriously overestimates Shenzhen, consisting of Yantian, Chiwan
and Shekou, but underestimates Shanghai. The cause may well be the fact that the
present model does not consider any inland transportation, resulting in a significant
amount of volume from/to China being lifted in Shenzhen instead of Shanghai.
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Another discrepancy is that the traffic at Hong Kong is too low. In our model,
Hong Kong is treated as an independent region rather than a port in China. This
may slightly shift the trade volume from Hong Kong to other ports in China (e.g.
Yiantian, geographically close to Hong Kong). The significant lower lifting volume
in Singapore is caused by the under-representation of transhipment in the model.
Another aberration is that the model gives a far too large throughput at Gioia
Tauro.
From the port’s point of view, total throughput (the third column in table 3) and
its fixed income (the fifth column in table 3), determined by the scheduled shipping
network, are critical to maintaining income. Transhipment has a significant influence
on the total throughput, especially for some hub ports.
Moves per TEU slot

35
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Figure 2. Shipping line’s average moves per TEU slot.

20
Income per TEU

18
16
slot ($k)

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Figure 3. Shipping line’s average income per TEU slot ($k).

 26 D. Song et al.

Table 3. Incomes, costs and movement-patterns for the top 20 ports by throughput.
Total Tran. Fixed Lifting Total
lifting lifting income income income
Port Country (0 000TEU) (0 000TEU) ($m) ($m) ($m)

Hong Kong Hong Kong 15215 1111 60 1522 1548

Singapore Singapore 12034 6758 55 1203 1056
Yantian China 9089 36 13 909 921
Busan South Korea 7419 353 32 742 763
Kaohsiung Taiwan 6263 566 25 626 634
Rotterdam Netherlands 5653 2104 41 565 543
Gioia Tauro Italy 5178 2009 12 518 470
Los Angeles USA 4755 96 9 476 482
Shanghai China 4640 58 19 464 481
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Long Beach USA 4569 7 7 457 464

Hamburg Germany 4378 321 15 438 443
Oakland USA 4298 0 10 430 440
Kobe Japan 4171 16 18 417 435
Port Klang Malaysia 4121 1913 24 412 378
New York USA 3981 82 10 398 406
Antwerp Belgium 3974 1473 25 397 379
Yokohama Japan 3922 46 17 392 408
Bremerhaven Germany 3465 823 9 346 331
Felixstowe UK 3396 720 17 340 335
Laem Chabang Thailand 3253 54 9 325 333

From our results, the top ten ports by transhipment volume and those by the fixed
income are shown in the figures 4 and 5, respectively. We have no available historical
data to make comparisons. However, some well-known transhipment ports, such as
Singapore and Hong Kong (Far East), Rotterdam and Antwerp (Europe), Algeciras
and Gioia Tauro ( Mediterranean), Colombo (Sri Lanka) are in figure 4. The fixed
income reflects a port’s financial standing.
Table 3, figure 4 and figure 5 provide insights into breakdowns port income, and
each port’s total throughput as well as transhipment volume.

6. Discussion
We have used a very simple charging structure for all the ports, so results about ports
are less accurate than could be achieved with a more sophisticated charging
structure. Since most shipping lines operate in many countries the effect of port
difference is averaged out. For this reason results about shipping services should
be more reliable. The main purpose of this paper is to show that such a simple model
works. More realistic input data would be required in order to reproduce historical
results.
With realistic input data, the model can provide the following results: (1) each
shipping line’s incomes and costs; (2) different tariffs paid to the ports; (3) utilization
of the shipping service; (4) each port’s decomposed incomes such as fixed income and
lifting income; (5) each port’s total throughput and transhipment movements;
(6) port’s competition situation in the current shipping network by comparing
throughput and fixed cost. It is not only useful to shipping lines and ports, terminal
operators or port authorities, but, when coupled with a model for the inland
 On cost-efficiency of the global container shipping network 27

Table 4. Port throughput ranking in year 2002 [2].

Port name Total throughput (0 000TEU)

Hong Kong 18600

Singapore 16800
Busan 9436
Shanghai 8610
Kaohsiung 8493
Shenzhen 7614
(Yantian, Chiwan and Shekou)
Rotterdam 6500
Los Angeles 6106
Hamburg 5374
Antwerp 4777
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Port Klang 4530

Long Beach 4526
Dubai 4194
New York/New Jersey 3700
Qingdao 3410
Bremen/Bremerhaven 2999
Gioia Tauro 2955
Tokyo 2900
Felixstowe 2750
Laem Chabang 2749

8000
Transhipment lifting

7000
6000
('000 TEU)

5000
4000
3000
2000
1000
0
illo

p
o
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ng

s
bo
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ng

eu
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to
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Figure 4. The ten biggest transhipment ports.

distribution, it can also provide logistic companies and hauliers with valuable
information about the geographic pattern of container traffic.
In summary, the model we have presented is a working tool that can be used
to guide cost reduction and business expansion. Combined with a trade forecast
model and a shipping capacity forecast model, it can be used to estimate over-
capacity of liner services and traffic growth at ports. For instance, how change
in transhipment tariffs affect container traffic can be studied. Although it is
a model for static sailing schedules, and port capacities, other factors (such
as terminal handling charge, fuel price, etc.) are allowed to vary over time.
By re-running the simulation, the effect of changing service deployment etc.
can also be studied.
 28 D. Song et al.

70
60

Fixed income ($m)

50
40
30
20
10
0
Si ong

am
e

ai
oh p

be
Po iung
An n

Sh ng

e
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or

Ka er
sa

ow
gh

Ko
a
rd
ap

tw
K

Bu

Kl

an
s

st
te
ng
g

lix
rt
ot
on

Fe
R
H

Figure 5. The ten biggest ports in the scheduled shipping network.

The results of the model can be used by shipping lines to reshuffle their
liner services more advantageously. The ports can also use the results to anticipate
alteration of liners services. For example, if the ranking by throughput is not con-
sistent with the ranking by port fixed income, implying a deviation from average
loading and discharging fractions, then some shipping services may want to change
their port rotation.
It is noteworthy that we have used income per slot as a financial performance
measure regarding slot utilization. The reason that we are not using the term
operating profit is because shipping lines have different cost structure, financial
strength and operational efficiency. None of the above can easily be represented
in the model. Furthermore, there are other factors that make operating profit
ill-defined: fluctuation of foreign exchange rates, different accounting periods,
and the fact that container shipping is not always the only business of a ship-
ping line.
In the scenario under study it is assumed that shippers choose services on the basis
of price – the supply-demand factor is ignored. In the real business world, some
shippers assign cargo on the basis of quality of service. Also, freight rate and the
underlying cost do not always bear the simple relationship as has been postulated,
e.g. a shipping line may artificially lower its freight rate to increase market share [12].
Despite its simplicity, the model is able to reproduce, to a very good accuracy, the
ranking of top 20 ports by throughput. The model also gives the most important
transhipment ports. These results suggest that the current container-shipping
network is, to some extent, already working optimally.
Growth in container cargo came to a halt in 2001 as the world economy faltered.
The growth rate registered only 0.3%, far short of the 7% that was forecast at the
beginning of the year. In the same year, however, the world’s pure container vessel
fleet increased by a staggering 12%. The year 2002 saw a healthy rebound in cargo
demand but the outlook for the industry is far from rosy. A massive 481 348 TEU of
slot capacity was ordered in 2002. Our simple model shows that an optimum solution
gives an overall utilization ratio of 74%, which is probably 5% below the real world
result. While one cannot draw definite conclusions due to many simplifications,
 On cost-efficiency of the global container shipping network 29

our result does reinforce the view that overcapacity will remain a problem for years
to come.

7. Conclusion
This paper presents a simple formulation in the form of a pipe network for modelling
the world’s container shipping network. It is designed to represent in a realistic
fashion the world’s existing container shipping network: the container vessels and
the ports. The model is computationally efficient. Implemented in the Java language,
it takes one minute to run a full-scale network on a Pentium IV computer. Cost-
efficiency and movement-patterns of the current container-shipping network have
been investigated using heuristic methods.
The model is able to reproduce the overall incomes, costs and container move-
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ment patterns for the industry as well as for the individual shipping lines and ports.
From table 1, the cost of repositioning empties is just under 15 billion, which is 27%
of the total world fleet running cost. Therefore, shipping lines’ profitability very
much depends on whether the cost of moving empties is redeemable or not.
The world fleet capacity is set to increase at a rate of 11% in 2003, while trade
volume is believed to grow at a rate of 5–6%. The model suggests overcapacity is
still a problem.
Further work is required in the following aspects: (1) improving the repositioning
of empty containers; (2) giving the shipping lines liberty to make dynamic decisions
in response to changing business environment, e.g. to change capacities; and
(3) predicting the trends of the container business (in conjunction with a forecast
model for the world economy).

Acknowledgements
This project is funded by the Office of Science and Technology through EPSRC. The
authors acknowledge MDS Transmodal Ltd for providing the trade data,
Containership databank and the Lincost model. We also thank Sheila Farrell for
many useful discussions.

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 30 D. Song et al.

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