Meta-frontier function approach to operational efficiency for shipping companies

ABSTRACT

This study uses a meta-frontier function approach to estimate operational efficiency and technology gaps for shipping companies. Researchers have evaluated the relative efficiency of shipping firms with the assumption that shipping firms operate under one frontier technology. However, the assumption of one frontier technology is being argued by efficiency literature. Therefore, this study estimates relative efficiency of shipping firms in different market segments (dry bulk, liquid bulk, and containerized cargo), possibly operating with different technologies and, hence, under different frontiers. This study uses a meta-frontier function approach that allows us to distinguish separate frontiers for different groups and decompose efficiency scores relative to the meta-frontier. Data used in this study is collected from Thomson One Banker from 2001-2013 in the form of unbalanced panel data. Empirical results suggest that dry bulk firms’ production technology is more advanced than others and the production frontier is the closest to that of the meta-frontier. In addition, efficiency scores are all low, but containerized cargo firms achieve higher technological efficiency than the other two groups. It is also suggested that containerized cargo and liquid bulk firms should prioritize improvements in their production technology and dry bulk firms should prioritize improving group efficiency.