Efficiency drives demand for larger ships

SHIPPING NEWS: Efficiency drives demand for larger ships
Peter Ziobrowski 24 Oct 2018 https://www.thechronicleherald.ca/business/shipping-news-efficiency-driv...

The Halifax waterfront used to be a very different place.

The docks were home to large transit sheds. Cargo would arrive by rail or truck, and be unloaded into the sheds where it would wait for the vessel hired to carry it to arrive. Ships could spend days or weeks in port, as cargo was loaded on board the ship, hand packed into the ship’s holds, in much the same way you would pack your car’s trunk to maximize the amount stuff you could carry.

A single shipment could be split up throughout a hold, maximizing cargo volume, at the expense of the amount of time to load and unload. Tramp steamers travelled between ports loading and discharging cargo. The ships operated with no fixed schedules, and picked up and discharged whatever cargo they could at intermediate stops along the way.

All that changed on April 26, 1956, when Malcom McLean picked the first shipping container off a truck and loaded it onto the deck of the Ideal-X, a converted Second World War tanker that could carry 58 33-foot containers on its deck. That first shipping container took seven minutes to load and a total of 58, the capacity of the ship, were loaded on that day with the ship sailing that evening.

The shipping container drove down the cost of handling one ton of cargo from more than $5 to 15 cents. Containerization meant that ships could now sail on a predicable schedule. When your cargo is loaded in Europe or Asia, the shipping line can tell you what day it will arrive at the Port of Halifax with great certainty.

One of the first realizations was that if a ship could carry more shipping containers, the cost per container went down. It wasn't long before the Ideal-X was carrying 62 containers, kicking off shipping's ongoing race to carry more cargo more cheaply — a trend that continues to this day as container ships get bigger and bigger.

Today, shipping lines are all building bigger ships. This drives the price per container down, creating efficiencies in transport and an abundance of capacity. The price drop causes competitors to lower their rates so as to retain market share and then go searching for their own efficiencies, which perversely leads them to build even bigger ships. This adds even more capacity to the market causing the whole problem to repeat.

This constant downward pressure on shipping prices is so great that it currently costs just less than $1,500 to ship a 40-foot container from South Korea to Canada.

To deal with low prices, the container shipping lines have undergone numerous mergers, acquisitions, alliances and bankruptcies in recent years. Hanjin went bankrupt; the Japanese carriers NYK, MOL and K-line merged their container businesses to form ONE; the two Chinese container lines COSCO and CSCL merged under the COSCO banner; Hapag-Lloyd merged with CSAV, and acquired UASC; CMA-CGM acquired APL and NOL; Alliance was formed as an agreement between ONE, Yang-Ming, and Hapag-Lloyd; the Oceans Alliance was formed between OOCL, COSCO and CMA-CGM, and the 2M alliance between Maersk and MSC.

The alliances reduce competition on routes, ensure that the vessels travel more fully loaded, and reduce the capital requirements for the shipping lines.

This is causing smaller Panamax container ships to be laid up, and sold for scrap. In 2005, the largest container ship in the world was the Colombo Express, able to carry 8,749 twenty-foot equivalent units. Now 12 years later the largest container ship is almost three times as large, carrying 24,000 TEU. The Panama Canal can now take vessels up to 14,000 TEU, so it is reasonable to expect those vessels will start calling on Halifax in the near future.

Containerization in its early years left many ports behind. Those that didn’t want to upgrade infrastructure were bypassed by the container lines. Felixstowe replaced Portsmouth in England, New Jersey replaced New York, Singapore grew out of nothing to become the busiest port in the world, handling a fifth of all containers shipped.

Shipping lines need cargo and ships to move in and out of ports quickly and reliably. A port that can do that will have business, and this is where the Port of Halifax excels. Containers don't dwell at the terminals waiting shipment, and can reach inland destinations faster through Halifax, than they can though closer ports.

It is unlikely that Halifax will become a mega port handling millions of TEUs per year. But our port has a good business, and with some investment can get a lot better.