Introduction

Investing in large ships has been the traditional way of increasing the capacity of cargo transportation and raising the profitability of shipping through higher freight income. The economies of scale have been achieved, however, at higher fixed costs and higher operational risks because of fluctuating demand for transportation services. A more flexible way to increase the cargo carrying capacity is to raise the cruising speed by improving ship hull design and engine power, resulting in a larger number of round trips per year. The additional benefit of higher frequency is faster delivery and responsiveness to customer service, implying also the possibility of charging higher freight rates. The fast ship projects have, unfortunately, a history of failure due to excessive fuel costs and ports congestion.

There is, however, another way to achieve economies of speed in sea transportation by improving cargo handling facilities and loading speed. Considering its potential benefits, cargo handling speed has received much less attention in practice and in the literature of shipping economics than the perhaps more glamorous developments in naval architecture. The development of port handling technology also impacts on several organizations whose interests and business processes are more difficult to align than the mere physical structures.

This article addresses the opportunity to add value by increasing the loading speed. First the goal of improving capital utilization and cargo-carrying capacity via frequency of shipping service is analysed. Since the investments in ship size, cruising speed and loading speed are interrelated, their trade-offs are traced starting from the traditional operations and extending to the opportunities offered by new technology. The results indicate that there is untapped profit-making potential in port operations, which is highly relevant for the practising shipping companies.

Second, the issue of variable costs and fees charged by stevedoring companies is discussed. In considering the development of cargo handling technology, the shipping company may either use automated container terminals (already operating in Rotterdam and Singapore) and hatchless ships or opt to reduce its dependence on port facilities and services. We study the savings achieved, for

example, by the use of a self-discharging ship.

The gist of the article can be illustrated with an analogy drawn from Japanese manufacturing and applied to shipping. The traditional working methods (lashing, stevedoring, etc.) still in use require specialized workers and obscure the opportunities for standardized process support. The idea is to distinguish internal set-up (performed only when a machine is shut down) from external set-up (done while the machine is running). The possibility of applying methods to reduce the unproductive machine time by manipulating the two types of set-up has been pursued in the Japanese manufacturing systems since the 1950s[1]. Similarly, the internal set-up times have been reduced in port operations by using standard containers. The question addressed here is how fully to realize the potential for setup time reduction so as to revolutionize port operations as was done by the Japanese pioneers of just-in-time manufacturing.

The article is organized as follows. First a model of the impact of technology investments on the profit-making potential in shipping is provided. Then the trade-offs between the cruising speed and the loading speed are illustrated with numerical examples, including also ship size as a design variable. In the next section, a more complete framework of shipping economics is set out and a simulated business analysis of a conventional container ship and a self-loading Twinstar[2] design is presented. The concluding discussion constitutes the final section.