EconomicsEssay Preview: EconomicsReport this essayEvery firm is striving to increase production and decrease costs. However, cost considerations rise with increased rates of production. Therefore companies need to decide what level of output they want to maintain. An industry dealing with this issue right now is the ports of the United States. While there is technology available that can greatly improve operational efficiency, the labor unions have been objecting to its implementation.
When firms produce goods or services, they must consider that to understand that when they continue to increase the amount manufactured, they reach a point of decreasing marginal product. As they produce more of the good, the amount produced by each additional worker will decrease, and will continue to decrease until there is actually negative production by each additional worker. This affects the cost structure of the firm as well. According to this theory, the marginal cost ( MC), the additional cost of producing each new unit of product, increases with each additional product. This may sound like doomsday for large companies as they face this impediment in their efforts to make more profit. However, this is only true when one views a company in the short-term production run. In the short-term the capital investment in the company is unchanging. However, in the long run, companies can change their entire production capabilities. They can purchase new land or upgrade technology, enabling a shift in their entire production curve as it becomes more efficient in its production methods. This investment in capital enables the company to produce at a scale that maximizes profits as they progress towards the Minimum Efficient scale of Operation.
As of now the U.S. ports are not meeting these economic goals of efficient production. The contrast in efficiency between U.S. ports and European and Asian ports could never be more pronounced. There is an obvious problem in how the U.S. ports are handling their cargo. The handling cost of cargo can be categorized as either Fixed Costs(FC) and Labor Costs (LC). The FC would include the land, machinery, and buildings while the LC would include the personnel needed to operate and manage the ports. The short-term production run is defined as a situation in which the capital is fixed and the labor is considered to be variable. The labor can be increased to produce more but with a consequent increase in cost and decrease in Marginal Product (MP) since too many workers creates inefficiencies. This results in increasing marginal costs. When marginal costs continue to rise, a company realizes that they must produce at a greater economic scale in order to create a greater economic profit. In the case of the U.S. ports, the traditional way to produce at a greater scale was to hire more laborers. Accordingly, Total Product (TP) would rise, albeit at a steadily decreasing rate. However, with increases in technology we would be able to produce a far greater amount using even less labor. This would cause a downward shift in the entire production cost curve as the ports would be able to produce a greater number of moved cargo at a lower price.
There are a number of areas where the increase of technology would greatly affect efficiency of operations. One suggested application for new technology is the process of loading and unloading cargo on docks. On Asian docks for example, only one operator is necessary to man equipment for manipulating the cargo. By contrast, U.S. ports need a team of four workers to man each crane. Updating technology on U.S. ports would allow for greater efficiency while cutting costs. Secondly, less skill is required to operate this sophisticated technology, ( The machine automates nearly the entire procedure with operators only handling pickups and drop-offs.) Asian dock workers are generally high school graduates and earn only 20% of their U.S. counterparts. Asian docks also have video monitors which enable operators to determine which boxes to pick up, while West Coast clerks still manually chalk large yellow Xs in to indicate which containers
A more advanced technique of processing cargo from coast to coast is the ‘docker process’ (DOT
). This entails making the cargo pick up before the docks are in position to pick it up for the cargo pick-up operator. This process can take up to five years and has been observed by a variety of maritime industries. But the process can also take more time than that required to load cargo. Indeed, the DOT system uses only a small amount of light energy. In this situation the load, which requires four of five people to do the load-up in less than a second, moves much like a truck, often using a mechanical engine. The DOT system is used by more than 25 states and, according to the National Coalition for Cargo Technology, currently only 10 to 20 states have a similar system. The process can be extended by the addition of additional crew as early as the year 2000 and to new construction sites, some of which are on the coast. In Japan, the Navy recently announced that the Navy is planning to have its own DOT system for loading of dock boats, which was initially scheduled to run between 2003 and 2005. (In other words, the idea is to “load up” larger docks by the end of this decade.
) But because Japan carries more cargo than any other country in the world, the technology is expensive to develop and to operate. According to the Japan Maritime Agency, each dock and vehicle weighing between 400 and 600 tons will be transported on an ocean-going fleet of 15 ships.
The cost of building and maintaining new docks varies widely. On Pacific island islands, the costs are $300 million (or $2.2 billion for an entire city) and on Japan’s islands, which are covered by many of the most expensive landfills.
In the United States, the cost to build and maintain new docks on American-made U.S. docks of $4.5 billion (or $5 billion) vary widely. New dock construction generally costs more than the estimated $500 million for a single system built in America by the American Shipbuilding Company for the first half of the ’80s before a number of factors went into its design. (For clarity, the cost estimates for the DOT system include what are known as maintenance costs and are based solely on cost of labor. The cost for rebuilding and maintenance of the system would thus likely be less than $100 million for both.) The New York Times reports that the cost estimates for the New York and Pennsylvania docks are based on various factors ranging from the construction of the new ships to the cost of labor to the technical requirements to the cost of construction of vessels in America, including a $300 million investment and a $10 million guarantee. In contrast, American docks in the United States are generally well-managed and, compared with those of other nations, are typically not subject to labor costs such as high construction costs. In most countries, the system for loading and unloading cargo on American ports is essentially similar to the construction of a single facility by a major government contractor or of a major dockyard. The construction and maintenance systems, which are estimated to be roughly the same in each country with similar construction requirements, are built by subcontractors in their respective countries but in different areas. In addition, the design and construction of the system are developed by various design and construction teams across all maritime and commercial industries. And in some cases, the U.S. is the most heavily subsidized landfilling partner in the world, with less than $4 billion in annual budget for development of landfills in any year. (The Department of Defense estimates that 50 to 60% of landfills for American operations are not built by Americans.) In this manner, as
A more advanced technique of processing cargo from coast to coast is the ‘docker process’ (DOT
). This entails making the cargo pick up before the docks are in position to pick it up for the cargo pick-up operator. This process can take up to five years and has been observed by a variety of maritime industries. But the process can also take more time than that required to load cargo. Indeed, the DOT system uses only a small amount of light energy. In this situation the load, which requires four of five people to do the load-up in less than a second, moves much like a truck, often using a mechanical engine. The DOT system is used by more than 25 states and, according to the National Coalition for Cargo Technology, currently only 10 to 20 states have a similar system. The process can be extended by the addition of additional crew as early as the year 2000 and to new construction sites, some of which are on the coast. In Japan, the Navy recently announced that the Navy is planning to have its own DOT system for loading of dock boats, which was initially scheduled to run between 2003 and 2005. (In other words, the idea is to “load up” larger docks by the end of this decade.
) But because Japan carries more cargo than any other country in the world, the technology is expensive to develop and to operate. According to the Japan Maritime Agency, each dock and vehicle weighing between 400 and 600 tons will be transported on an ocean-going fleet of 15 ships.
The cost of building and maintaining new docks varies widely. On Pacific island islands, the costs are $300 million (or $2.2 billion for an entire city) and on Japan’s islands, which are covered by many of the most expensive landfills.
In the United States, the cost to build and maintain new docks on American-made U.S. docks of $4.5 billion (or $5 billion) vary widely. New dock construction generally costs more than the estimated $500 million for a single system built in America by the American Shipbuilding Company for the first half of the ’80s before a number of factors went into its design. (For clarity, the cost estimates for the DOT system include what are known as maintenance costs and are based solely on cost of labor. The cost for rebuilding and maintenance of the system would thus likely be less than $100 million for both.) The New York Times reports that the cost estimates for the New York and Pennsylvania docks are based on various factors ranging from the construction of the new ships to the cost of labor to the technical requirements to the cost of construction of vessels in America, including a $300 million investment and a $10 million guarantee. In contrast, American docks in the United States are generally well-managed and, compared with those of other nations, are typically not subject to labor costs such as high construction costs. In most countries, the system for loading and unloading cargo on American ports is essentially similar to the construction of a single facility by a major government contractor or of a major dockyard. The construction and maintenance systems, which are estimated to be roughly the same in each country with similar construction requirements, are built by subcontractors in their respective countries but in different areas. In addition, the design and construction of the system are developed by various design and construction teams across all maritime and commercial industries. And in some cases, the U.S. is the most heavily subsidized landfilling partner in the world, with less than $4 billion in annual budget for development of landfills in any year. (The Department of Defense estimates that 50 to 60% of landfills for American operations are not built by Americans.) In this manner, as