Running On Empty

More than five years ago we did some simple arithmetic – the kind that now goes by the sophisticated-sounding name of “logistics”. Here’s what we wrote:

– “An 8,100 TEU mega-ship requires somewhere around 6,480 TEU (80% capacity) before it could even consider getting underway. This ship, of course, would absolutely not sail until additional cargo was taken aboard. It would be cheaper to put the vessel in mothballs.
– Two 3,240 TEU container ships, however, would be fully loaded (6,480 TEU) and en route in that same time frame, and would be 100% profitable for the ship owner.
– Or three smaller 2,160 TEU container ships could be fully loaded (6,480) and en route in that same time frame, and bringing 100% profit to the ship owner.”

“Bear in mind that in these latter two cases product would be arriving at destinations much earlier.

“Other important aspects will weigh heavily in this scenario.
– The smaller vessels are not restricted to just a handful of U.S. ports.
– No expensive dredging projects are necessary to accommodate them.
– No expensive freighting will be required in order to deliver goods to distant consumers.

“There are other “industry insiders” who will also have a say in the matter. Shipping agents have a lot at stake and will have good reason to shy away from these restrictive and inflexible mega-ships.
– Time is always a major factor. Smaller ships, fully loaded and underway days in advance of mega-ship departures, assure quicker delivery of goods.
– Lost time will force competing agents to choose the quickest, least costly vessels.
– When mega-ships offload at “king-ports”, the cost of additional freighting to ultimate destinations will reduce an agent’s profits and increase costs to the consumer.
– Consumers will rely upon the agent using the quickest and least costly means of transit.” –

That was five years ago, and others are now – belatedly – seeing the light. Randy Chen, for one, the special assistant to the president of Taiwan-based Wan Hai Lines, recently stated, “Bigger is better if you can fill the ship. If your ships are not full, you need to put the vessel away for a period of time to make sure the revenue covers the cost.”

The man was a prophet. Hundreds of thousands of TEU capacity in almost a thousand container ships were laid up in subsequent years – just as Mr. Chen anticipated.

And Eric Nielsen, the daily operations chief serving under Nils Andersen, Maersk’s CEO, in a Dow Jones interview stated that, “We have larger ships with more capacity, which isn’t needed, and that costs money. As a consequence, our capacity utilisation on these routes is very low.”

Tell that to your boss, Nils Andersen, Eric. He hasn’t been paying attention. All he knows is that “bigger-is-better” and that giantism will surely produce “economies-of-scale”. Set him straight, Eric.