We can apply the phrase “small is beautiful”—the title of a 1973 book which went on to become a tagline for the environmental movement that was burgeoning in the 1970s—to the size of a maritime company putting its attention on lower costs of operation. Shipping journalists have also borrowed the phrase when product tankers, rather than behemoth crude oil tankers, are under discussion.

In the maritime conference circuit and in the maritime media, there’s been extensive conversation about the virtues of bigger companies. The rise of the “big company” conversations is not surprising. Tanker and dry bulk shipping successes are really all about timing. To win at timing, shippers need to be acquisitive; that’s the strategy that some of the bigger companies are engaged in now.

Sensibly, the packagers of companies have used weak markets to build up larger fleets as they amalgamate secondhand acquisitions or large blocks of newbuilds they have picked up at attractive prices. The messaging from many of those acquirers has taken on the slant of bigger being better.

Some of the bigger players have discovered investors are more focused on earnings instead of assets. In a fragmented business where all firms are essentially price takers, operational cost does matter, even when the market’s strong hires are offsetting free cash flows.

Yet the argument that bigger is always better ignores the true nature of shipping’s economies of scale. A microeconomic analysis of company cost structures shows, decidedly, that bigger does not always translate to lower costs per vessel.

In the realm of product tankers, one company that fits into the “small is beautiful” categorization is Pyxis Tankers Inc., which gained a NASDAQ listing in late October. Its six-vessel fleet includes four medium-range (MR) tankers built in South Korean yards.

They are typically 30,000 to 55,000 deadweight tonnes (dwt), and three vessels fit in the “eco” description (energy efficient with environmental protection features) and two are short-range tankers. All of the vessels are double-hulled, with an average age of less than five years.

All are on time charter, as is one of the two short-range ships. Their cargoes include gasoline, jet fuel, naphtha and other refined petroleum products. The ships can also take organic chemicals and vegetable oils.

It’s never quite possible to make purely “apples-to-apples” intercompany comparisons where listed tanker companies are concerned. But examining a group of peer companies will show what’s been happening in the sector and show the cost advantages of a small company.

Starting with the top line, revenues will depend on the combination of spot (voyage by voyage) vs. period chartering coverage, and the charter markets’ term structures. In volatile markets like the present, vessels in the spot trades have been earning more than ships engaged in the more predictable period time charter trades.

For Pyxis’ MR vessels (47,000 to 52,000 dwt), all on time charters, the average hire for the first quarter was just shy of $17,100 per day. This hire, in line with broker estimates of what period time charters might bring, reflects the company’s layered approach to managing its charter portfolio.

The spot markets tend to be highly volatile. One larger competitor with several dozen medium-range vessels saw its tankers—mainly in spot trades—netting $24,655 per day and $19,681 per day in third-quarter and fourth-quarter 2015, respectively.

Another peer, this one with 15 MR vessels, saw them earn $24,269 per day and $18,508 per day in the respective third and fourth quarters, with trade mainly in spot employment.

But spot trading is volatile. In early 2016, the Baltic Exchange valued the time charter equivalent on trans-Atlantic employment for MR tankers at below $15,000 per day. This measure of spot earnings had stood above $25,000 per day in late 2015. But rumblings persist regarding the floating storage of refined products.

“We have a cost-competitive operating structure which is strategically and financially important to management and our shareholders,” said Pyxis’ CEO, Eddie Valentis. “The maxim of ‘small is beautiful’ is truly reaffirmed when we turn to the cost side of the income statement, taking a detailed view of the line items composing daily cost.”

Pyxis Tankers Inc. pays $425 per vessel per day for the services of an outside technical manager, and $325 per vessel per day for commercial management—maintaining relationships with its world-class customer base of top traders and oil companies.

With the company’s small footprint, its daily general and administrative (G&A) expense for each vessel (adjusted for non-cash components) is on the order of $1,080, a few hundred dollars per day lower than the two peers’. The daily operating expense for the eco-MR tankers in Pyxis’ fleet is estimated to be about $5,800 per day, and about $6,200 per day for eco-modified units.

There’s no denying that we’ve seen a strong market for crude oil tankers since late 2014. Several analysts are suggesting that the product tankers market, which strengthened during 2015, will actually have more staying power than the crude carrier sector, where there are fears of a surge in orders.

The product sector, on the other hand, is seeing a historically low ratio of deadweight on order to total fleet size, under 12% according to Drewry Shipping Consultants Ltd. With continually changing trade patterns tied back to arbitrages in product pricing and the continually evolving refinery picture, the spot rates have shown volatility, which again puts the focus on keeping costs down.

The G&A expense of a much larger firm further illustrates the point that companies with smaller fleets can be far nimbler when it comes to income statement line items dealing with costs. Such numbers also defy exact comparisons, but a look at several peer companies shows Pyxis’ costs to be extraordinarily competitive.

Technical management fees paid to outside vessel managers at the mid-sized peer came to $370 per day in fourth-quarter 2015. Its commercial management is done internally, so there is no precise per diem that can be matched.. However, this peer’s G&A expense, which would subsume the commercial component, worked back to just under $1,500 per vessel per day in that quarter. The larger peer reported a large G&A number of nearly $1,300 per vessel (adjusted for non-cash expenses) when spread over this company’s fleet of owned vessels.

Barry Parker is a freelance writer with bdp1 Consulting Ltd. specializing in energy topics.