Why the rising cost of shipping isn’t a surprise, part 4

Cost of shipping: Image of an Evergreen ship docked at the port of Los Angeles
This entry is part 4 of 5 in the series Cost of Shipping

If you found this post via search, it probably makes sense to start with the first post in this series on the cost of shipping. The link to the full series is above, and here.

What’s the downside of the overcapacity of megaships? Why is that bad for the overall global economy?

I wouldn’t say necessarily it’s bad for the overall global economy, but it’s really bad for A) ship lines, for sure, but B) these mega-ships have generally fouled up the transportation system.

You actually have fewer ships calling at most ports today than you used to have.

But they’re much bigger.

So think of what does to the operation of the port.

You don’t have a smooth flow of cargo going through the port.

Now, you’ve got nothing happening at the port.

It’s dead today.

Then tomorrow, a ship shows up and it wants to unload 3,000 containers, in your port.

What do you do with this? How do you get this unloaded?

Where do you put the containers?

One thing that’s happened is that ships spend more time in port, which is very wasteful because it takes more time to get so many containers on and off.

The trucks are lined up at the gate because there are so many containers to bring in and send out on these ships. There are so many containers to deliver.

The railroads can’t handle this sudden flood of containers, so you have the cargo sitting around longer before it gets removed from the port.

All of these things have tended to make the transit times longer, and have made it harder for shippers to get their freight where it needs to be by the deadline.

And that’s bad for everybody.

Who are the three big players in shipping? And do you think their hold on the industry is sustainable?

The big players have formed what are called “alliances“.

These alliances have squeezed most of the smaller players out of the business.

One alliance involves Maersk, the Danish company, and Mediterranean Shipping, which is based in Switzerland. Between them, those two companies have a little over a third of all the container shipping in the world.

There’s another alliance that has Cosco, the China Ocean Shipping Company, the French company CMA CGM, and Evergreen, a Taiwanese company, and it has about 30% of the world’s shipping.

And then there’s another alliance that has the German company Hapag-Lloyd, Japanese lines, and Korean lines, and it has about 20%.

So if you put those three alliances together, their market share in container shipping is close to 85%.

Will those alliances stay together? At the moment the system looks pretty stable.

You can imagine that at some point a government will step in and say the alliances can’t continue, that they’re anti-competitive, but so far, that hasn’t happened.

Is there anything that shipping companies can do right now to unsnarl traffic and get it going again?

A part of the snarling of traffic is due to things beyond their control.

For example, traffic into and out of the UK is totally snarled for reasons related more to Brexit than to problems with container shipping.

In general, ship lines have decided that these giant ships were not a brilliant idea.

So we’re seeing now that ship lines are interested in building vessels that are a bit smaller.

The average ship size went from carrying the equivalent of 4,500 containers to the equivalent of 12,000 truck-sized containers in the span of a dozen years.

But the ship lines have discovered that these ships that have 20 thousand, 22 thousand, 24 thousand TEUs, divide by two for the number of containers, that those ships really don’t work very well.

It takes too long to load them, it takes too long to unload them, there are too many places where they can’t go.

It’s too often the case that they’re not needed, and so the ship lines are interested in building vessels that are somewhat smaller than that now.

As that happens, I think that may resolve a lot of these problems that are caused by these ships just being too big.

Select “Next Post” below for the next post in the series.

Series Navigation<< Why the rising cost of shipping isn’t a surprise, part 3Why the rising cost of shipping isn’t a surprise, part 5 >>

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