Sunday, December 17, 2017 | ISSN 0719-241X

The bigger, the better: Shipping money’s value in world commerce

How economies of scale drive maritime transport
Edition of June 13, 2017

If we had to list 10 things that could be purchased with just one dollar, we probably would not be able to get half-way through the list, let alone finish it. Inflation and current supply/demand has devalued the green bill, but in shipping a dollar still gets a lot done. 

Moving cargo by sea in vast quantities at one time over significant distances is a large-scale operation that results in many cost-savings that make it a very attractive business model for carriers and shippers alike. The average haul of one ton in the scope of cargoes such as crudeo oil, for example, is estimated at 5,016 miles and the average ship size at 58,706 dwt. Of course the amount of ton-miles/dollar can vary over time, depending on changes in asset market conditions, the underlying cost and complexity of building ships and vessel productivity, speed and utilization. 

A bargain at any price 

Vessel size (economies of scale in building) and cargo density (this analysis is in tonnes) play a role too in these relative statistics. The larger the ship, the cheaper the overall transport cost will be. For instance, one dollar of bulkcarrier and oil tanker tonnage accounts for 154 and 101 tonne-miles of trade per year respectively. For more complex, expensive ships like gas carriers, the figure sits at 20. For boxships, despite their higher speed, the figure stands at 114. 

Nevertheless, whatever the precise numbers and changes over time, 110 ton-miles of trade each year for one dollar of asset expenditure just sounds like mighty good value at a time when a dollar doesn’t go very far. This underpins shipping’s ability to carry an estimated 84% of the world’s trade in tonnes and act as the glue holding the globalized economy together. Shipping’s famous volatility retains the ability to make and lose fortunes for asset players but the underlying economic contribution of each dollar invested may just be one of the greatest bargains of all time. 

By MundoMaritimo

Source: Clarksons Research

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