Profitable Again?

The container shipping industry is finally awash in money, as rates on some routes have doubled in the past few months. For some people, this confirms the wisdom of the past decade’s rush to build enormous container ships. The Wall Street Journal recently published an article of mine sharply disagreeing with this view; as I wrote, consolidation driven by the high cost of building megaships has allowed the surviving carriers profitable by idling ships. I think the claim that these big, slow, unreliable ships have improved supply-chain efficiency and reduced costs for shippers is just not true.

Hercules Haralambides, a well-known professor of maritime economics in Rotterdam, has triggered further discussion on this point with a recent post. Professor Haralambides has been a long-time critic of what he terms the “megaship folly,” and he has latched on to my claim, laid out in detail in my new book Outside the Box, that only hidden subsidies have made the megaships financially viable. The vessels still have their defenders, but that seems to have become a minority view within the shipping industry itself.

It’s important to note, as well, that the shipping industry’s sudden profitability depends entirely on a surge of exports from China after COVID-19 disrupted trade earlier this year. The surge, in my view, is unlikely to last. Consumers in many countries have been able to build up their savings because shutdowns related to the coronavirus have made it harder to spend money. When people finally feel a bit safer, they’ll be wanting to buy plane tickets, restaurant meals, and live entertainment, not goods that move in metal boxes.

Tags: Hercules Haralambides, subsidies