The maritime supply chain has been stretched to the limit over the last year and there have been a number of reasons for that. From a lack of containers to surges in global economy activity, as consumers shifting from buying services to buying goods, the freight time and cost have increased significantly. Below is a mindmap that looks at the major problems faced by the maritime supply chain last year.
The mega ship the Ever Given was a familiar name in the news recently with it getting stuck in the Suez canal and thus preventing any marine traffic in both directions. The Ever Given is operated by the Taiwan-based firm Evergreen and is a so called mega ship and was carrying over 18,000 containers.
Mega (container) ships have been built in increasingly larger sizes to take advantage of economies of scale and reduce expense as part of using multiple forms of transport without actually handling of the freight itself. The big container ships can carry up to 23,964 twenty foot equivalent unit (TEU) whilst the smaller capacity ships have a maximum capacity of 1,000 TEU.
Herd Mentality and Prisoner’s Dilemma
This being said there is some dispute over the extent that the mega ships achieve economies of scale. A follow the leader mentality in ordering bigger ships have been since the mid 1990’s with firms following Maersk in ordering bigger capacity ships. In most cases it only takes two years for other carriers to catch-up to Maersk and in some cases they can hold more TEU. This has led to operators facing prisoner’s dilemma. Operators are trying to outdo their rivals by building larger ships which help increase its market share through their reduced costs but are fully aware that what actually is needed is capacity rationalisation. This strategy has not only fuelled the never-ending competition for large ships but also led to mistrust among operators, entangling them in the prisoner’s dilemma. The ideal scenario is for operators to refrain from acquiring mega ships and let supply and demand prevail.
Infrastructure costs to cope with mega ships
The graph below shows the savings and costs increases from increasing the capacity of mega ships. There is a saving with carrying more TEU’s but terminals will incur significant capital expenditure to handle larger vessels and terminal yards areas will need to increase by 33% to avoid congestion, even with no growth in volume. There are negative externalities to consider that arise from upsizing as dredging deeper channels and expanding yard area will have environmental effects.
Source: Diminishing economies of scale from megaships? Marine Money Japan Ship Finance Forum, Tokyo 12th May, 2016
Maersk have just launched the biggest shipping container ever made. 400 metres long, 59 metres wide and 73 metres high. There are 29 being made and they will be deployed on the vital Asia to Europe trade. The Triple-E class can hold 18,000 containers. Below is a video from the FT.
The Triple-E is about more than size, though. In fact the name refers to the three main purposes behind the creation — Economy of scale, Energy efficiency and Environmentally improved.
The Triple-E at a glance
*The Triple-E will emit 20% less CO2 per container moved compared to the Emma Maersk, currently the world’s largest container vessel, and 50% less than the industry average on the Asia-Europe trade lane.
*The vessels will be equipped with a waste heat recovery system, saving up to 10% of main engine power. *This equals the average annual electricity consumption of 5,000 European households.
*Triple-E vessels travel 184 kilometres using 1 kWh of energy per ton of cargo, whereas a jumbo jet travels half a kilometre using the same amount of energy per ton of cargo.
Deep Sea and Foreign Going is an account of a 5 week trip from Felixstowe in the UK to Singpaore. Rose George explains how on a train journey that most items of clothing, electronics, food etc are brought to the UK by ship. The reason being that shipping has become so cheap that it makes sense to import items. She uses the example of cod – it is less costly for Scottish cod to be sent to China to be filleted and then exported back to UK restaurants than it is to pay the (small) salaries of Scottish filleters. Some interesting facts from the review of the book in the Guardian Weekly:
* Containers are the largest man-made moving objects on the planet;
* Triple-E class boats are around 400 metres in length and can carry 18,000 boxes;
* In 2011, 360 commercial ports in America took in international goods worth $1.73tn – 80 times the total value of all US trade in 1960;
* Even in the UK, whose sense of itself as a seafaring nation has long waned, the shipping industry employs nearly 635,000 people;
* Port authorities inspect less than 10% of boxes, making them of great interest to counterfeiters and drug barons.
BBC business correspondent Alastair Fee boards a Chinese container ship off the coast of England and reports on the enormous size of it – holds 13,500 containers. And they are getter bigger. More than 40% of the UK’s sea trade comes into the Southampton Dock and to meet increasing demand from container ships a new 500 metre birth is being dredged. However trade goes the other way as in 2012 the demand for cars from the growing Chinese middle class saw over 20,000 BMW Minis make their way to Chinese ports.
The Economist and the Financial Times have recently looked at the impact of the container and container ships. With the first journey of a container ship in 1956 the cost for tonne of cargo was $0.16 per tonne to load—compared with $5.83 per tonne for loose cargo on a standard ship. Furthermore, according to The Economist, countries with container ports rose from about 1% to nearly 90% which coincided with the rapid increase in global trade – see graph. Although it could be said that other events were happening at the same time – the movement towards free trade and reduced tariffs, the single market in Europe in 1992 and the eventually formation of the World Trade Organisation (WTO). Video below is from the FT.