“Economies of scale” (the scam what am!) A reprint of Vol. XIII, Art. 17 – the ongoing scam.

“Bigger is better … PostPanamax container ships will lower costs to the consumer.” Yeah, right.

* Elvind Kolding, chief executive of Maersk Line, admitted to shippers gathered in Portugal that freight rate increases have no bearing on improved service levels, explaining that price hikes are necessary to combat soaring costs that are often outside the control of the lines.

He also admitted that carriers must now reach 90 percent or more ship utilization in order to sustain low rate levels, and that figure rises to 100 percent in peak seasons.

“Congestion is going to get worse,” he stated, and he predicted that volumes would double in the next eight years and lead to restricted terminal space.

[And megaships are supposed to reduce costs throughout the supply chain?]

* Japanese carriers MOL and “K” Line project reduced container services in the coming months because carriers will be looking to balance the supply/demand equation in the slack season in an attempt to push rates up. Last year they dealt with the problem by means of withdrawal measures such as slowing ships, skipping voyages and cutting services completely. “We are looking at ways to temporarily adjust fleet supply and demand balance by reducing sailing frequencies,” MOL stated in a recent report.

Giant ships are the problem, not the solution. Here’s what one analyst had to say about it;

“Large vessels have no impact whatever on either the amount of traffic handled in a port or on freight rates. The former depends on the state of the economy and the latter on supply and demand. But the amount spent on capital and maintenance dredging, on more equipment, on larger tugs and longer berths will continue to mount. It is true that if larger vessels routinely call at a port, fewer berths will be needed because one vessel does the work of many; so even if it takes more space on a berth it replaces several smaller vessels.

“But this is on the erroneous assumption that only large vessels will call. In fact, the number of berths required will not reduce because ports must invariably cater to a number of smaller vessels which are essential for the coastal or near-coastal movement of goods.

“The real beneficiaries of the new generation craft and vessels will be the owners. The incremental cost of carrying … one extra tonne of cargo is infinitesimal while earnings increase hugely. Hence the price advantage of large carriers accrues only to the owners who are unlikely to buck the market trend by passing it on to the users.

“So the next time someone argues forcefully … for seaports capable of handling the latest in huge container vessels, check whether he represents the users or the owners.” [Cui bono?]