Assessing the operational efficiency

of shipping firms using DEA

ANALYSIS
Cyprus University of Technology, November 2018
EXN – 850 Research Methods
Dr. Erricos Kontoghiorghes
BSc, MSc, PhD Candidate in Shipping Finance Andreas Kouspos
Presentation Summary

 What is DEA Analysis

 Simple example
 Assessing operational efficiency of shipping firms
 What is DEA Analysis
 Was firstly explained by Charnes, Cooper and Rhodes (1978)
 “DEA is a linear programming method for assessing the efficiency and productivity of units called Decision Making
Units(DMUs) in DEA”(Ji and Lee, 2009)
 “DEA does not assume a production function between inputs and outputs. Given a collection of points in a
multidimensional space, DEA calculates its upper or lower convex hull or ‘envelope’. Thus, by representing each stock as
a point in a multidimensional space, DEA will calculate an envelope frontier to the stocks.” (Panayides et al., 2009)
 “…DEA has gained considerable attention…and it has been used widely for assessing the efficiency of public and private
sectors such as banks, airlines, hospitals, universities, defense firms, and manufactures” (Ji and Lee, 2009)
 DEA is a method for measuring efficiency of DMUs using linear programming techniques to envelop observed input-
output vectors as tightly as possible(Boussofiane et al., 1991)
 Collection of DMUs with possible inputs and outputs. DEA allows multiple inputs-outputs to be considered at the same
time without any assumption on data distribution. In each case, efficiency is measured in terms of a proportional
change in inputs or outputs
 DEA model can be subdivided into input-oriented model which minimizes inputs while satisfying at least the given output
levels and output-oriented model which maximizes outputs without requiring more of any of the observed input values
 What is DEA Analysis
 Non-parametric model
 Allows the envelopment of observed input-output vectors
 DEA models can also be subdivided in term of returns to scale by adding weight constraints.
 Charnes, Cooper, and Rhodes (1978) originally proposed the efficiency measurement of the DMUs for
constant returns to scale(CRS) where all DMUs are operating at their optimal scale.
 Later Banker, Charnes, and Cooper (1984) introduced the variable returns to scale(VRS) efficiency
measurement model allowing the breakdown of efficiency into technical and scale efficiencies in DEA.
 Assessing the efficiency
 DMU is calculated “as the maximum of a ratio of weighted outputs to weighted inputs subject to the
condition that the similar ratios for every DMU will be less that or equal to unity” (Charnes et al, 1978)
 A commonly used method is ratios.
 X and Y values are constants, will usually
be observations from past decisions on
inputs and outputs
  ”…a DMU is a distinct unit within an
organization that has flexibility with
respect to some of the decisions”
(Beasly, 2018)
A simple example
Bank's Name@Branch 1 Transactions Number of Staff Personal transaction@employee (000s)
Bank of Cyprus 76500 159 481.13
Elliniki 36954 135 273.73
RCB 49487 85 582.20
Ancoria 45120 148 304.86

We see that RCB has the highest score thus, we can compare its operational efficiency to the
other banks:
Bank's Name@Branch 1 Relative efficiency Relative efficiency
Bank of Cyprus (481.13/582.52) 83%
Elliniki (273.73/582.20) 47% Inputs  No. of staff
RCB (582.20/582.20) 100% Outputs  Transactions
Ancoria (304.86/582.20) 52%

The other banks do not compare well with RCB, so are performing less well because they
are relatively less efficient at using their given input resource (No. of staff) to produce
output (Transactions).
All the banks other than RCB would be beneficial to employ less staff members (input)
by trying to achieve the same no. of transactions so they can maximize their operational
efficiency. Otherwise, they can try to increase number of transactions (output) by
opening new accounts having stable the number of employees.
 Examining the relative efficiency of shipping firms

Dry

Shipping Firms Wet

Containers
Shipping Markets

• Vessels sail as “tramps”, namely, they do not follow a

scheduled timetable with precise ports of arrivals &

Tramp
departures and times but they look for transporting cargo all
around the world. E.g A Tanker to carry crude oil from
Bonny to Rotterdham or A Dry vessel to carry iron ore from
Tubarao to Qingdao

• Vessels sail in a pre-scheduled timetable with exact times

and port of arrivals & destinations.

Liner
Examining the relative efficiency of shipping firms

 Using the input-oriented DEA because cost minimization or reduction is our desire.

Operational Efficiency
Inputs Total Assets, No. of employees, Capex
Outputs Sales
 Data Collection
Ship-management Firms
Containers Dry Wet Diversified
Danaos shipping Genco Shipping Scorpio tankers Navios Maritime
Diana shipping Safe bulkers Nordic American Dryships
Costamare shipping Scorpio bulkers tankers Tsakos Energy
Seaspan shipping Starbulk DHT Holdings Euroseas
Global Ship Lease Pyxis tankers
Ardmore shipping
 Correlation Matrix

  revenues ta capex employees

revenues 1      
ta 0.989 1    
capex 0.9812 0.9864 1  

employees -0.0208 0.0133 -0.00633 1

 Preparing the excel file
Company Year Revenues TA Capex Employees

Danaos 2015 514925 3405032 1370 147

Diana 2015 142991 1691845 141043 1094
Seaspan 2015 6349025 47346845 5524521 300
Global Ship Lease 2015 164919 904920 108190 8
Costamare 2015 444606 2430115 2501 140
StarBulk 2015 212418 1993857 429682 150
Genco Shipping 2015 153959 1724074 67360 1385
Golden Ocean Group 2015 190238 2178667 519013 28
Safe bulkers 2015 115433 1206170 112010 724
Pyxis Tankers 2015 33170 141722 18766 8
Nordic American Tankers 2015 445738 1244626 123476 21
Scorpio Tankers 2015 755711 3523455 0 17
Ardmore 2015 157882 778198 232850 30
DHT Holdings 2015 365114 1423805 144547 18
Navios Maritime 2015 450607 2725067 31661 552
Dryships 2015 879302 438444 458471 360
Tsakos Energy 2015 587715 2900697 60934 151
Euroseas 2015 37680 172407 16629 9
 Preparing the excel file
Company Year Revenues TA Capex Employees
Danaos 2015 13.15178 15.04076 7.222566 4.990433
Diana 2015 11.87054 14.34133 11.85682 6.997596
Seaspan 2015 15.66381 17.67301 15.52471 5.703782
Global Ship Lease 2015 12.01321 13.7156 11.59164 2.079442
Costamare 2015 13.00494 14.70345 7.824446 4.941642
StarBulk 2015 12.26631 14.50558 12.9708 5.010635
Genco Shipping 2015 11.94444 14.3602 11.11781 7.233455
Golden Ocean Group 2015 12.15603 14.59422 13.15968 3.332205
Safe bulkers 2015 11.65645 14.00296 11.62634 6.584791
Pyxis Tankers 2015 10.4094 11.86162 9.839802 2.079442
Nordic American Tankers 2015 13.00749 14.03435 11.7238 3.044522
Scorpio Tankers 2015 13.53541 15.07495 11.96391 2.833213
Ardmore 2015 11.9696 13.56474 12.35815 3.401197
DHT Holdings 2015 12.80796 14.16884 11.88136 2.890372
Navios Maritime 2015 13.01835 14.818 10.36284 6.313548
Dryships 2015 13.68688 12.99099 13.03565 5.886104
Tsakos Energy 2015 13.284 14.88046 11.01755 5.01728
Euroseas 2015 10.53688 12.05761 9.718903 2.197225
 Ranks of companies according to operational
efficiency
The DEA input-oriented models are chosen for the present study because cost minimization or reduction is
used in this methodology (Tsai et. al., 2006).

STATA CODE:
dea ta noofemployees capex = earnings

OPTIONS: RTS(CRS) ORT(IN) STAGE(2)

CRS-INPUT Oriented DEA Efficiency Results

The DEA incorporates inputs and outputs related to operating performance consistent with the prior financial
accounting literature (Tsai et al., 2006; Barth et al., 1998; Collins et al., 1999).
  Rank Theta

dmu:Danaos 1 1
dmu:Diana 18 0.83349
dmu:Seaspan 13 0.908852

dmu:Global_Ship_Lease 1 1
dmu:Costamare 6 0.994384
dmu:StarBulk 15 0.856528
dmu:Genco_Shipping 16 0.853032

dmu:Golden_Ocean_Group 14 0.892801
dmu:Safe_bulkers 17 0.837219
dmu:Pyxis_Tankers 8 0.983046

dmu:Nordic_American_Tankers 1 1
dmu:Scorpio_Tankers 1 1
dmu:Ardmore 11 0.933789
dmu:DHT_Holdings 7 0.986052
dmu:Navios_Maritime 12 0.925331
dmu:Dryships 1 1
dmu:Tsakos_Energy 10 0.945444
dmu:Euroseas 9 0.976392
Limitations

 DEA Analysis requires special programs to run it. Eg. Banxia Frontier Analyst software
References
 Charnes, A., Cooper, W.W. and Rhodes, E., 1978. Measuring the efficiency of decision
making units. European journal of operational research, 2(6), pp.429-444
 Lee, C. and Ji, Y.B., 2009. Data envelopment analysis in Stata. under review by the Stata
Journal.
 Panayides, P.M., Lambertides, N. and Savva, C.S., 2011. The relative efficiency of
shipping companies. Transportation Research Part E: Logistics and Transportation
Review, 47(5), pp.681-694.
 Wu, Wann‐Yih, et al. "Assessment of intellectual capital management in Taiwanese IC
design companies: using DEA and the Malmquist productivity index." R&D
Management 36.5 (2006): 531-545.
 Boussofiane, Aziz, Robert G. Dyson, and Emmanuel Thanassoulis. "Applied data
envelopment analysis." European Journal of Operational Research 52.1 (1991): 1-15.