Edinburgh Napier University

  This paper calculates the Minimum Efficient Scale (MES) of container port operations, which, despite significant economic analyses of port efficiency and productivity, has been addressed only rarely thus far. The research also explores the extent to which port size has varied with respect to the MES point and looks for evidence of whether ports are gravitating towards this point. Two different approaches are used, data envelopment analysis (DEA) and the econometric estimation of a production function. Both methods consistently identified the underlying trends with regards to scale effects and the MES point over time, although the DEA produced lower values than the production function, due to its tendency to under-estimate scale inefficiency, and the elastic nature of the underlying production function around the MES point artificially widens the difference between the two methods.
The research finds that the MES point for container ports is considerably larger than past research has estimated, in a range between 0.75 and 1.33 million TEU, therefore the area of increasing returns is more elongated than originally thought. It also finds that over time, the point of MES has been rising, hence the throughput range over which increasing returns are experienced has been expanding. This suggests a production process that underpins an L shaped rather than a U (or skewed U) long run average cost curve; however, this is not inconsistent with a U shaped average cost curve in the very long run.