Econometric analysis of ship life cycles - are safety inspections effective?

Govert Bijwaard and Sabine Knapp

No EI 2008-02, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Due to the shipping industry’s international legal framework and the existence of loopholes in the system, an estimated 5-10 percent of substandard ships exist which are more likely to have incidents with high economic cost. This article uses ship life cycles to provide insight into the effectiveness of inspections on prolonging ship lives. We account for fluctuations in the relevant economic environment and the (possible time-varying) ship particulars. We use a unique dataset containing information on the timing of accidents, inspections, ship particular changes of more than fifty thousand ships over a 29 year time period (1978-2007). The results of our duration analysis reveal that the shipping industry is a relative safe industry but there is a possible over-inspection of vessels. It also reveals the need to improve transparency related to class withdrawals and changes of classification of the vessel. Another interesting finding is that for the majority of ship types an increase in earnings decreases the incident rate. This is in contrast to the industry perception of the impact of earnings. The effect of inspections vary across ship types and the prevention of incidents with high economic costs can be improved by better coordination of inspections, data sharing and a decrease in the number of inspections . Further, more emphasis should be placed on the rectification and follow up of deficiencies.

Date: 2008-03-31
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