An Application of Cost Benefit Analysis to the Strategic Shipping Sector

This paper is derived from a cost benefit study of the involvement of the State in the shipping industry which was carried out in the context of the Appraisal of the Public Capital Programme. A brief theoretical comment on foreign exchange rates is the only new material I have added. The paper is concerned with the mainly strategic company in the state-owned shipping sector, Irish Shipping Ltd.(I.S.L.). The basic methodology of this paper is based on that employed by Dr. Martin O'Donoghue in a paper entitled "A Cost/Benefit Evaluation of Irish Airlines" read before this Society on 16th May 1969. I do not propose to explain in detail the methodology employed and I would refer any of you who are not already familiar with it to Dr. O'Donoghue's paper. This paper differs from that of Dr. O'Donoghue in that it applies the techniques of cost/benefit analysis to issues different in nature from those arising in his study and also attempts to carry the analysis a stage further than in his study. In order to give prominence to what is novel in this paper, and in order to avoid the tedium of covering ground already covered by Dr. O'Donoghue, I have relegated much essential explanation and calculation to appendices. I do not propose to read these appendices but I shall refer to them where necessary as the paper proceeds. The data on which this paper is based is for the year 1968/69 which, at the time of the original study, was the latest year for which full information was available. Irish Shipping Ltd. was established by the State in 1941 with the primary purpose of ensuring the availability of sufficient shipping capacity to keep open vital supply lines during the second world war. During periods of general international emergency shipping is not normally available to neutrals and most such countries have consequently found it necessary to build up fleets of deep sea shipping under domestic control. Hence, Irish Shipping was established initially to fulfil a strategic role and, up to some years ago, the size and structure of its fleet was tailored to meet with strategic specifications. The primacy of the strategic role of the company is made clear by the statement of Government policy with regard to the Company in the Third Programme for Economic Expansion: