The Tail Wagging The Dog

Everyone knows that container ships have grown to enormous proportions because of “economies of scale”. That’s a term that was originally applied to the truck transport industry. It all began when local producers began using panel trucks and pickup trucks to deliver goods to retailers, and logically, because more goods could be carried longer distances, stake trucks and finally trailer trucks were employed for these deliveries. The merchant making the deliveries reduced his overhead and increased his profit margin by cutting back on the number of trips and the amount of travel time, and in this position he was able to pass on some of the savings to the end user. Everyone benefitted from this economic metamorphosis. Maritime travel preceded wheeled travel by a few thousand years, of course, so it was inevitable that intercontinental delivery of goods would develop in the same way overland transport developed. It makes for a pretty good analogy, so far.

Take another look at it, though. The analogy limps. Did the delivery company demand that the end user, the customer at the point of delivery, build new roads to accommodate his newer and larger vehicles? Or else? Of course not. The delivery company relied on a suitably sized truck to accommodate the buyer, otherwise that customer would turn to a competitor. The tail didn’t wag the dog back in those days … and it still doesn’t in the trucking industry … so why should consumers/taxpayers knuckle under to those foreign shipping lines demanding that billions be spent in order to make way for their highly profitable juggernauts? This is the “camel’s nose” allegory we mentioned a few days ago. As long as the consumer continues to acquiesce, larger ships will be built and more and more demands upon the consumers/taxpayers will be made. In the megaships case, the reduction in TEU-cost isn’t passed on to the consumer because no threat from competitors is as yet foreseen. But it will happen. The well will run dry and things will come full circle.

Think about this. The very customers/taxpayers being asked to foot the bill for dredging, for the demolition and replacement of bridges and highways, for expanded ports and railway infrastructure, and, yes, even for the cost of the ocean-going behemoths, are the same ones who’ve seen their jobs farmed out to overseas firms. Simple math reveals that the water level in the well is already down to a critical stage. Every time a measure is taken to remove obstacles in the supply chain, or assure speedier transport of goods, or tightened security, or infrastructure upgrading, there’s always a fee tacked on to every TEU. Even each “smart box”, it’s being rumored, will require an extra $ 50 per TEU per trip price tag. With the per “TEU” add-ons we keep reading about, what will happen to the lower priced goods that were destined for retailers shelves? The “cost-conscious” buyer will soon be a thing of the past. With present levels of unemployment and the guarantee that many more of our citizens will soon be in that category, buyers of any description will be few and far between.

Chuck Mack wondered, “It’s perplexing why no one is stepping up to the plate. Everyone is afraid to make the first move.” And Doug Tilden said, “We have to find a different way to operate”.

We’re offering that different way. It looks more and more like a panacea every passing day.

[… and it looked that way when this commentary first appeared on Dec. 21st, 2004.]