Lower operating costs as compared to higher fixed costs (that is, the capital costs associated with larger
and more fuel-efficient ships) will likely also lead to more volatile freight rates. In the short term, the
freight costs will have to cover at least the operating costs of the carrier; put differently, if the price of a
transport service does not cover at least the fuel, communications and crewing costs, the carrier will
anchor the ship and not offer the transport service. In the long term, however, the freight charges will have
to cover the total average costs, including the fixed costs. As operating (variable) costs are lower today
than in previous decades, this means that freight rates may also reach lower levels than in the past. Lower
unit operating costs in bigger vessels, however, can only be reached if utilization rates are sufficient; if they
are not, the carrier might be affected by diseconomies of scale. The risk of the latter also increases with ship
size, particularly if demand and supply do not develop in line with each other. Effectively, freight rates appear
to fluctuate more today than in earlier decades, and the changing structure of operating versus fixed costs
is probably one of the reasons for this trend.
Lower operating costs as compared to higher fixed costs (that is, the capital costs associated with largerand more fuel-efficient ships) will likely also lead to more volatile freight rates. In the short term, thefreight costs will have to cover at least the operating costs of the carrier; put differently, if the price of atransport service does not cover at least the fuel, communications and crewing costs, the carrier willanchor the ship and not offer the transport service. In the long term, however, the freight charges will haveto cover the total average costs, including the fixed costs. As operating (variable) costs are lower todaythan in previous decades, this means that freight rates may also reach lower levels than in the past. Lowerunit operating costs in bigger vessels, however, can only be reached if utilization rates are sufficient; if theyare not, the carrier might be affected by diseconomies of scale. The risk of the latter also increases with shipsize, particularly if demand and supply do not develop in line with each other. Effectively, freight rates appearto fluctuate more today than in earlier decades, and the changing structure of operating versus fixed costsis probably one of the reasons for this trend.
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