Airship Costs for Intercontinental Shipping

Airships are well-named from an economic perspective. The economics of a cargo airship are more similar to an ocean-going ship, than to any other mode of transport. Of course, they serve the opposite ends of the cargo spectrum. Ships specialize in relatively low value, bulk cargoes, while airships would serve higher-value, packaged goods, but the economies of size principle cross-applies.

Both airships and ships are displacement vehicles. Their payload is a function of the weight of fluid they displace. Ships can carry much larger cargoes than airships because the weight of sea water displaced by a ship is 1,000 times greater than the weight of air displaced by an airship of the same size. Generally speaking, a cargo airship that could carry 25 metric tons (MT) is about the size of a ship that could carry 25,000 tons.

Displacement vehicles follow the “square-cube” rule: as the surface area of the shape increases, the volume increases even faster.  In the case of ocean shipping the approximate payload and length illustrates the benefits of size:

• Handy size ship that carries 25,000 MT is 150 m long
• Panamax size ship that carries 60,000 MT is 200m long
• Cape size ship that carries over 100,000 MT is 250m long

The Cape size ship is less than twice as long as a Handy size ship, but can carry over four-times more. A bigger ship will have a larger engine, but not four-times as large. Similarly, in terms of other costs, the ship’s crew is about the same number, and the bridge is about the same as are many other components. This also applies to cargo airships that get much better as they get bigger.

As buoyant vehicles, airships and ships pay nothing to afloat; they only consume fuel to obtain forward motion. Lower fuel consumption per “ton-mile” is another economy of size experienced by buoyant vehicles. Although increasing size does increase drag, and therefore fuel use, the impact is not proportional to the cargo capacity increase, which reduces fuel use per tonne carried.

Ships spend most of their lives at sea, or at least this is what owners want because they only earn revenues when they are moving cargo. Once a ship leaves the shipyard, the owners only want it to return to a drydock for inspection and repairs. The same applies to airships. Once they leave the fabrication building, the owners only want to put the airship back into a hangar for maintenance or inspections.

Ships operate from port to port where there are facilities for docking and transshipment. Long-distance cargo airships will operate similarly, but are less restricted. An ocean-going ship must stop at the coast, whereas the cargo airship can fly to the center of the continent to deliver its freight. The maximum size for ships is determined by the available draft at harbours and strategic passages, like the Panama Canal. Cargo airships do not face such external limits, and their ultimate sizes are more likely a function of the strength and weight of materials.

Based on these similarities it is possible to calculate the “ton-mile” costs of airships using a numerical model. The benefit of using mathematics is that all the assumptions are explicit. This narrows the debate over their accuracy and opens the model to improvement. As a living document, we are open to comments and refinements. With that in mind, consider the estimated cargo airship costs for a rigid airship operating on a trans-ocean route, with the following specifications.

Estimated Cargo Airship Costs

Operating assumptions:

• Cruising speed – 150 kmph (80 mph)
• Cargo capacity – 125 MT payload
• Useful operating life – 25 years
• Annual utilization – 300 days/year
• Daily flying time – 20 hours/day
• Fuel consumption – 1,000 litres/hour
• Loading/unloading time – 2 hours
• Cargo utilization – 100 percent
• Crew size – 5/ship, 3 crews in rotation for total 15 staff

Economic Assumptions:

• Insurance – $5 million/year
• Crew wages and benefits – $100,000/year
• Fuel cost – $1/litre
• Maintenance and Inspection costs – $2 million/yr
• Ground handling costs- $1 million/year
• Airship purchase price – $100 million
• Depreciation (straight-line for 25 years) $ 4,000,000/yr
• Output 112.5 million tonne-kilometers (77 million short ton-miles)

Cost calculation:

Fixed costs

• Aircraft amortization (25 years @ 5%) $7,000,000/yr
• Insurance for airship $ 5,000,000/yr
• Administration and ground support $ 1,000,000/yr
• Maintenance and inspection $ 2,000,000/yr

Total Annual Fixed Costs     $15,000,000/yr

Variable Costs

• Crews (15 persons @ $100,000) $ 1,500,000/yr
• Fuel ($1/ltx1000lt/hrx6000hrs) $ 6,000,000/yr

Total Annual Variable Costs     $ 7,500,000/yr

Total Costs $ 22,500,000/yr

Estimated Freight Revenues

Given the output of 112.5 million tonne-kms, the average cost is $0.20 per tonne-km ($0.296 per ton-mile). Of course, the manner in which transportation suppliers set prices has a very wide range. At a minimum, they must ordinarily cover all their variable costs on each trip. But, on any individual move, they will try to charge whatever the market will bear, and their ability to cover fixed costs depends on these markups. Consequently, these tonne-km costs should not be confused with pricing.

Pricing 

The utilization assumptions are quite aggressive. The airship is flying almost all the time, and almost full on average. This requires a well-organized operation, with good marketing and scheduling and a mass production mindset. But it helps that airships have the advantage of carrying very large bulky goods. Like ships, their freight rates may be quoted on a cargo density basis, referred to as dimensional weight pricing.

A dimensional weight calculation combines the physical volume and actual weight of a particular shipment to determine whether it is above or below some minimum density. Above this density the shipper pays by shipment weight, while below the minimum density the freight rate is determined by the package volume. Dimensional weight pricing and the treatment of cancelations could lead to situations where an airship charges for more than 100% of its weight capacity.

The value of the shipment is also important because carriers price discriminate. They charge higher rates for more valuable shipments and for faster delivery. Figure 1 presents a conceptual model of the value-density cargo shipping pyramid. It considers the weight and cubic value of the shipment, as well as the time in transit. Containerized ocean shipping dominates the current market because most goods cannot afford to pay cargo jet freight rates. Once airships are available, they could be able to capture a large share of the cargo moved by air, and a significant share of the higher-value, low-density cargo moved in containers.

Figure 1 Value-Density Cargo Shipping Pyramid

Source: Prentice, Barry E. and Yui-yip Lau. “Market Potential for Transport Airships in Service to Hong Kong” International Forum on Shipping, Ports and Airports (IFSPA) at Hong Kong, 29 November – 2 December 2015.

Prices fluctuate when supply is fixed and demand is variable. Expect cargo airship operators to vary prices by season, by type of cargo, by customer and by route. A reality of cargo transport is front-haul/back-haul traffic lanes. The airship has to obtain $0.2 per tonne-km on average, but that does not mean it has to always price at this level. The front-haul (the direction that has the most demand) will be charged according to the round-trip revenues including the low-paying backhaul traffic lane (direction with the weaker demand). With high fixed and low marginal costs, cargo airships will carry cargo very cheaply rather than sit idle or fly empty. But they will require some customers to pay well above marginal cost to provide a return to investors. For example, people sending books to Hawaii would pay ~$1 if they paid their fair share, but they will likely pay ~$3 without minding too much.

Transshipment and Delivery 

Intercontinental cargo airships, like ocean-going ships are unlikely to execute delicate last mile operations. This will be left to the railways and trucks. The transshipment must be done at a prepared location for the safety of the ground-handlers and to minimize dwell time. It is a moderately difficult engineering problem, probably best solved for specific cargo airship models after they are proved to work. Significant public and private investment will go into building the ground infrastructure to attract cargo airship services to their communities.

Airships have much more flexibility than ships in choosing the location for transshipment hubs. A ship arriving from Asia would need to transship at, say Los Angeles, and move goods by rail to Chicago. An airship could fly directly to Chicago, or to some nearby point located on less congested highways. Like ships calling at ports, the airships will be calling at inland, or “dry ports”, for transshipment.

Bigger is Better 

In one respect, the economic scenario presented here is quite conservative: it only assumes a roughly Hindenburg sized airship with a payload of 125 tons. There are complexities involved in building larger and larger structures and keeping them stable. But 125 tons is probably not a ceiling. And as airships get built bigger and bigger, they will enjoy ever greater economies of size. Double the dimension, and the payload will rise by tenfold or more. These bigger airships might push costs well below the estimate of $0.20 per tonne-km ($0.296 per ton-mile).