OCEAN SHIPPING COMPANY OPERATING COSTS ANALYSIS: CONCEPTS AND THEORY
This chapter is concerned with the concepts and theory that explain the factors that affect the variations in the operating costs in ocean shipping companies. The concepts and theories considered in this chapter apply to both the classification of operating costs and to those factors which may be reasonably expected to affect the level of such costs. Issues and concerns addressed specifically in this chapter are (1) factors affecting shipping costs, (2) the significance of operating costs, (3) cost allocation procedures, and (4) analyses of major operations cost elements.
A number of factors hold the potential to affect the level of operating costs for ocean shipping companies. As an example, the speed at which vessels ply the oceans affect the level of operating costs. One study found that a fleet operating at an average speed of 22 knots was far more costly to operate than was a fleet operating at an average speed of 18 knots.1 Fuel costs for the 22 knot fleet were 83 percent higher than for the 18 knot fleet, while other operating costs were nine percent higher for the 22 knot fleet than for the 18 knot fleet.
Another factor exerting a major impact on the level of operating costs for ocean shipping companies is general price
1Gunnar K. Sletmo, and Ernest W. Williams, Jr., Liner Conferences in the Container Age, 3rd ed. (New York: Macmillan Publishing, 1986), 137.
inflation.2 The essence of the rationale underlying the contention that inflation exerts meaningful effects on operating costs lies in the differentiation between nominal and real values.3 An easily understood illustration of the effects of this differentiation in an inflationary environment involves a capital gain. As an example, if an asset were acquired for $100 in year one, and if that asset were sold in year ten for $900, a nominal capital gain of $800 has been realized. If...