The Capacity Utilization of a Container Shipping Line

Under-utilization of fleet capacity has been a long-standing concern in the container shipping industry. In general, capacity utilization ratio is defined as the ratio of actual output to potential output. However, there are still some difficulties unsolved, as measuring the CU ratio for a shipping line. In practice, an engineering approach which is based on the installed slot capacity delivered during a year is the general way to represent the potential output. Since the installed capacity output lacks theoretical support, this paper follows an economics approach by deriving the optimal short-run average cost to find the potential output for a shipping line. In addition, this paper will also develop an output index called TUE-mile index to reflect the influence of transportation distance on measuring the actual output for a shipping line. Once the potential and actual outputs are well defined and measured, the derived CU ratio could be utilized to investigate the fleet utilization for a container shipping line.