Optimal fleet utilization and replacement

The fleet replacement problem of a profit-maximizing manager is examined using an optimal control model that captures both utilization and replacement decisions. Conditions for optimal utilization of each vessel in the fleet and optimal vessel acquisition and retirement strategies are discussed. The results indicate that the optimal replacement schedule and fleet size are influenced by utilization schedules, and vice versa. Thus, replacement and utilization strategies should be determined jointly. We develop a numerical example to illustrate the model's potential as a practical management decision tool and the procedures to solve it.