Selection behavior of the global container shipping industry for carrier-owned and leased containers

• Empirically, carrier-owned and leased containers are not perfect substitute.
• Container selection behavior can be explained by fixed proportion technology.
• The selection behavior may be driven primarily by strategic concerns.
• Container leasing companies are losing power in determining rental rates.

In container shipping practices, containers owned by the shipping lines and leasing companies are generally regarded as homogeneous factor inputs and can substitute each other perfectly in providing the shipping service. Based on industry-wide data, this study surprisingly finds that the behavior of container selection for container shipping lines does not follow the pattern of perfect substitution, but rather the pattern of fixed proportions technology, through a constant elasticity of substitution production function. Combined with the observed relationship between the approximately constant leasing rates and the shrinking price premiums for leasing companies over the past two decades, the empirical results suggest that concerns with both the capital cost and strategic means may play key roles in determining the mix of owned and leased containers for the shipping lines. Several strategic concerns including the long-term leasing contract, supplier diversity program, and option contract are discussed and suggested as approaches that can be applied by the shipping lines to arrange their leasing policies with lessors and to moderate the competition of these two parties in expanding their container fleets. These approaches not only can reduce the costs and the associated risks for the shipping lines, but can also alleviate the situation of over-supplied containers in the global container shipping industry.