An empirical analysis of vessel capacity utilization

The objective of this paper is to determine the drivers behind the utilization of a vessel’s cargo-carrying capacity on individual voyages. Based on maritime economic theory we propose that a vessel’s capacity utilization - here defined as the ratio of cargo size divided by DWT - should be positively correlated with freight rates, as poor market conditions will force vessels to compete for lower-than-optimal stem sizes. Furthermore, we propose that capacity utilization is dependent on the distance sailed and the value of the cargo. Using a unique data set sourced from port agent lineup reports and covering nearly 10,000 individual shipments of iron ore from Brazil between 2009 and 2014 we estimate a multiple regression model consisting of macroeconomic, route-specific and vessel-specific determinants. Our empirical results suggest that vessel-specific determinants (DWT) dominate the impact of general market conditions, with smaller vessels typically having lower capacity utilization. The impact of the freight market conforms to our a priori expectations. This line of research is crucial for improved modelling of real vessel earnings. Our results are also important for accurate estimation of tonne-mile demand based on observations of global ship movements from AIS data.