A Microeconomic (Vintage) Model of a Shipping Company: A Proposed Depreciation Strategy

Abstract

We dealt with an important part of fixed cost, i.e., the depreciation expense in managing a shipping company owning 20 intangible fixed assets (ships), characterized by different vintages (ages), and book values. Keynes drew our attention to the importance of capital for the economy, and he dealt with the ways not only to increase it, but also to keep it in tact, through replacement. When economists tried to make Keynes dynamic, however, (known as Keynesian growth theory), they faced with the problem that not only capital's productivity depends on capital's vintage, but also its embodied technical progress depends on age. In shipping, we use the concept of "sister 1 ship". We used also a questionnaire on shipping depreciation filled-out by 45 Greek shipping companies. The existing theory of depreciation is, for shipping, wrong, we believe! While accountants want capital to be replaced after its death, they "condemn" shipping firms to end, prematurely, when a severe cycle occurs! Depreciation is related to gross profits, instead of to market's conditions! Thus, we proposed an alternative shipping depreciation policy, using also an inexpensive statistical tool-a regression line-between ship age and price. When accountants etc. proposed depreciation for the first time, they ignored cycles, inflation and (shipping) depressions! We were surprised to find-out that economics … forbid "economies of scale", when average cost exceeds marginal cost, AC > MC! Any society which wants a faster growth, has to adopt embodied technical progress, reducing both capital and labor, than hitherto, and especially capital! Moreover, Society committed the mistake to create unequal income and wealth since Keynes's time (1936), something which re-appeared in its most grandiose form in 2019-2021, 1 A "sister ship" is the ship which is exactly the same as one or more previously ordered ships, for the benefits that this strategy offers. We may call them ships produced in series or in pairs with identical specifications. They could be better named twin ships. Their vintage may differ in months one after the other.

Shipping: How a Low-Earnings Industry Has Created Very Rich Owners? The Stopford’s Paradox

“…In other words, the PS shipowners-despite a low 7.3% return, almost half of that of S&P 500 of 14.1%-were happy! Part X: The Depreciation Policy of PS Most people know that depreciation (Goulielmos, 2021b) is a cost. Ships are expected to lose gradually their value as a result of their wear and tear-due to age and obsolescence-and despite their planned maintenance and their extension of life.…”