TITLE:
Can We Trace and Estimate the Technical Progress in Shipping Industry by Using the Cobb-Douglas Production Function?
AUTHORS:
Alexandros M. Goulielmos, Constantinos Giziakis, Evangelos Sambracos
KEYWORDS:
Cobb-Douglas Production Function, Estimation of Increasing Scale Economies in Shipping, Estimation of Technical Progress in Ship Production, and in $ Terms, History of Events and Technical Progress in Shipping, 1945-2021
JOURNAL NAME:
Modern Economy,
Vol.12 No.10,
October
29,
2021
ABSTRACT: This paper had an ambition: to estimate the impact
of Technical Progress embodied in vessels. Given that technical progress is
estimated in physical terms, we went a step further to estimate it also in $
terms, and this found equal to 8.2% p.a. The monetary technical progress is
more meaningful to managers. First, we found the existence of economies of
scale in tankers using the generalized Cobb-Douglas production function: , where α + βset >
1; the parameter α set equal
to 0.15 and the parameter β set equal to 0.94, based on actual data. The paper
presented a historical account of the events since 1945, which we held
responsible for the diffusion of a subsequent technical progress. Technical
progress in ships-most of it is called to solve technical problems. Ships were
regressing round 10,000 dwt, at relatively low speeds, after the 2nd World War, and they consumed a lot of fuel oil, but who cared (?) as oil
was very cheap. Sea trade did not stay at low levels, but increased by leaps
and bounds after the 2nd World War. Ships soon multiplied their size
by 6 times initially and then by more than 10 times. Tank(ers), suitable to
reap economies of scale, increased by 10 times, and eventually held the titles:
VLCC & ULCC, passing over various adventures! During 1945-1973, all
maritime variables were increasing, and even Onassis, an empirical
shipowner and uneducated, understood well the arithmetic of scale economies,
even before the 2nd World War by building the 1st super-tanker (1938)! Then, suddenly, and unexpectedly, Suez Canal closed
(1956). Ships had to travel a lot more sea miles… as a result they became even
bigger than proper for the future trade. Ships fell into the trap, however,
believing that Suez Canal will open after a very long time—even Onassis believed this. Shipowners run to build
giant ships! And all were going well till end-1973, for 16 years. Onassis and
other tanker shipowners became rich during this time. OPEC, however, decided to
change history (in end-1973) and to put an end in the story that oil is very
cheap. The “trap” worked, as ships had become already bigger, faster, and
covered longer distances, before fuel oil price increased about 10 times
reaching $200 per ton from $20! Ships broadcast an SOS to… technical progress “telling”
please: find a “cheaper oil and newer engines consuming less”! Technical
progress responded… Today, a lot of discussion is going-on not for a cheaper
fuel-oil, or a better main engine, but for a fuel oil… which will respect
environment, e.g., LNG or hydrogen or else? Will shipping technical progress
take revenge, in 2022 and thereafter on OPEC, on behalf of shipowners, by
making ships free from oil? A new history for shipping is going to be
written again…but this time will be a revolution, after Pandemic is over
after 2022.