Minimum efficient scale in container port operations over the very long run – is it increasing and does that matter?

Cowie, Jonathan; Monios, Jason

Abstract

This paper calculates the Minimum Efficient Scale (MES) of container port operations, which, despite significant economic analyses of port efficiency and productivity, has been addressed only rarely thus far. The research also explores the extent to which port size has varied with respect to the MES point and looks for evidence of whether ports are gravitating towards this point. Two different approaches are used, data envelopment analysis (DEA) and the econometric estimation of a production function. Both methods consistently identified the underlying trends with regards to scale effects and the MES point over time, although the DEA produced lower values than the production function, due to its tendency to under-estimate scale inefficiency, and the elastic nature of the underlying production function around the MES point artificially widens the difference between the two methods.
The research finds that the MES point for container ports is considerably larger than past research has estimated, in a range between 0.75 and 1.33 million TEU, therefore the area of increasing returns is more elongated than originally thought. It also finds that over time, the point of MES has been rising, hence the throughput range over which increasing returns are experienced has been expanding. This suggests a production process that underpins an L shaped rather than a U (or skewed U) long run average cost curve; however, this is not inconsistent with a U shaped average cost curve in the very long run.

Citation

Cowie, J., & Monios, J. (2019, June). Minimum efficient scale in container port operations over the very long run – is it increasing and does that matter?. Paper presented at 27th Annual Conference of the International Association of Maritime Economists (IAME), Athens, Greece

• Presentation Conference Type: Conference Paper (unpublished)
• Conference Name: 27th Annual Conference of the International Association of Maritime Economists (IAME)
• Start Date: Jun 25, 2019
• End Date: Jun 28, 2019
• Deposit Date: Jun 5, 2019
• Keywords: container ports; shipping; freight transport; Minimum Efficient Scale (MES); data envelopment analysis (DEA); translog production function; average cost
• Public URL: http://researchrepository.napier.ac.uk/Output/1855448