Expanding Waste Lines

Pat Gardiner was writing about the “Port of The Future” and the “End of the Line”, and he posed two questions: “Will container vessels continue to get larger?” and “Does size matter?”

“The transport industry has always engaged in strong emotions,” he began. “Perhaps it should be run with strictly business-like and clinical decision making, but it never has been and probably never will be managed so coldly. Size and speed have always captured everyone’s hearts from the Concorde and the jumbo jet to the super tanker and the Blue Riband right through to the double-decker train and the TGV. Shipowners and even the chairman of illustrious transport conglomerates are not immune from the glow of pride of being associated with the fastest or the biggest. It is not surprising, therefore, that history is littered with vessels that were built ‘too big’ and destined to become the last in a line of continuous growth in a particular sector. Today’s gasp of admiration at commercial audacity can often become a hoot of derision at yesterday’s leviathan.

“A number of company and press reports have recently speculated on new-buildings becoming ever larger: 7,000 to 10,000. And who knows, even 20,000 TEU. And yet all signs are there to suggest that the maximum size of container vessels has already been reached and perhaps even surpassed. It comes down to economics, since there is, in practice, little in the way of intrinsic operational reasons why containerships cannot become as large as the largest tankers. While ports would have to re-equip and sometimes dredge to accommodate ever-larger vessels, this has been the accepted pattern for harbors for thirty or more years.

“The real economics exist in the eternal conflict between the shippers’ desired frequency of service between two areas on the globe, and the economies of scale achieved by operating the largest vessel possible over the route. If the trade ships 1,000 TEU per week by a particular operator and demands a weekly direct service, then, all things being equal, we will see 1,000 TEU vessels trading. But all things are never equal, and the complexity of real life clouds the picture and gives adequate cover for a touch of maritime ego to come into play. First the carrier will consider and may try increasing their trade by taking cargo from competitors. If they can double their carryings, they will employ more economic 2,000 TEU vessels. Unfortunately, they can usually only double their carryings by reducing the price. The competition will have to follow suit and there will be a trade war – anathema to all carriers and a destructive situation to be avoided at all costs.

“Therefore, in order to increase the carryings per vessel and to reap, and hopefully retain, the economies of larger scale, carriers will co-operate. Two owners working together over the same route can each call alternately fortnightly and use 2,000 TEU vessels. This kind of arrangement under one form and name or another has been traditional in shipping since the dawn of the industry. Co-operation achieved, the size of the vessel employed is seemingly only limited by the volume of trade on the route. In recent years continual increases in world trade over most routes, fueled by prosperity and tariff reductions, has fed the ambition for larger vessels. It would be unwise, however, to rely on continuing growth from a tariff elimination program that has largely reached its ultimate goal.

“However, there has also been another quite separate process, largely invisible to the trade and unrecognized by the general public, feeding the growth in vessel size. Here lies the Achilles’ heel of ever-larger container ships. Containerization has not only concentrated trade on fewer larger vessels, it has also concentrated trade on fewer ports with larger hinterlands. Large container vessels call at fewer ports at each end of their voyage, saving time, fuel and port charges. Large container ports, usually also considered ‘hub ports’, handle more trade giving 24 hours coverage and the economies of scale. To achieve these beneficial results, cargo is drawn from and delivered to ever-larger areas, by land and not just by smaller vessels serving the hub on local sea routes.

“Felixstowe, largely through its own efforts, is merely the most spectacular beneficiary of this process of concentration, but the costs elsewhere in the transport chain from larger ships and fewer ports are heavy. How heavy can be judged from a recent statement from Hapag-Lloyd that include the following two extracts …

” 1.) ‘… Moreover the ocean transport costs per container unit were reduced via our co-operation in the Grand Alliance. 2.) … systematically extended to the land sector in order to realize the synergies for purchasing land transport and other services, as non-ocean activities account for 80% of our costs and ocean transport only 20%.

“So, a company always considered one of the world’s great container liner operators spends only 20 percent of their costs on ocean transport – the rest on land! The same company talking about larger vessels. The implications are startling, as this apportionment is no doubt fairly typical of deep-sea container operations. All the efforts devoted to reducing costs by increasing the size of vessels only impacts on 20 percent of the total – and then almost certainly detrimentally on the 80 percent part of the cost!

“There are many legitimate reasons why this strange situation arose over the decades, none of which reflect badly on Hapag or any other owner/operator, but nevertheless that is where we are now. The facts are indisputable. Increasing ship size against a constant volume of trade must involve larger hinterlands and longer local journeys. Efforts to reduce costs on the 20 percent of operation will increase the 80 percent.

“Of course, the situation has not gone unnoticed. Liner operators are desperately trying to reduce costs on the land transport movements, but this is not easy. However, it is less difficult to gain an apparent improvement in costs by increasing the size of the vessels as a well-tried and tested traditional technique feeding the ego if not the ultimate balance sheet. However, twentieth century techniques will no longer work in the new millennium. We can be sure we are seeing the end of the growth of size in container vessels and the start of an assault on land transport and its associated costs, financial and environmental.” –

The author hit the nail right on the head – the ever-larger leviathans are the very cause of the industry’s ill health. But do you suppose those – whose chief concern is “the corporate fanning of feathers” – will cease and desist? We guarantee you they won’t – because they didn’t.

Mr. Gardiner wrote this analysis way back in March – of 2000!