Marc Levinson

Tag: Ports

  • The “Crisis” in the Ports

    “Ports face biggest crisis since the start of container shipping,” the Financial Times headlined the other day. At the time, according to the article, 353 container ships were queuing outside the ports to unload cargo. “Ports are in desperate need of investment,” John Manners-Bell, head of the consultancy Transport Intelligence, is quoted as saying. Even before the pandemic-driven rush of cargo, Soren Toft, the CEO of the huge shipping group MSC, told the FT, “Port complexes were becoming old, there were capacity restrictions [and] there were restrictions on the ability to serve the ever-growing size of ships.”

    When you hear that sort of thing, I advise clutching your billfold. Container ports are indeed crowded today, but “crisis” warnings are a clarion call for the public sector to make investments that should be funded by shippers and carriers, not the public purse.

    Until the middle of 2020, it’s worth remembering, the problem facing ports was not excess demand, but excess capacity. Some ports had overexpanded; others suffered because competing ports had taken their business. The arrival of megaships, some now carrying as much freight as 12,000 over-the-road trucks, meant that fewer vessels were calling at most ports, leaving storage areas and costly ship-to-shore cranes underutilized. Poor business prospects led to shotgun weddings among ports like Seattle and Tacoma in the United States and Yokohama and Tokyo in Japan, in hopes consolidation would help the ports cut costs to attract more business.

    Things have been very different over the past 14 or 15 months due to COVID-19. Consumers in the wealthy economies, flush with economic stimulus and unable to enjoy vacation trips, live concerts, or visits to the spa, have been spending like crazy on bicycles, appliances, furniture, and the like, creating blazing demand for imports. But only a portion of the seemingly endless supply-chain delays that are hampering manufacturers and retailers can be blamed on the ports. Importers, their distribution centers overwhelmed, are leaving their inbound containers stacked in ports and rail terminals for several days longer than normal, hindering the routine movement of freight on railroads as well as ships. Those loaded containers are effectively unavailable to exporters, further interrupting supply chains. Shoppers can’t get their goods. Factories can’t get their components. Delays cascade, and everyone engaged in international trade points the finger at everyone else.

    Disentangling this mess will take a while. But we’re not back in the boom decades between 1987 and 2008, when trade grew twice as fast as the world economy. As vaccines slowly quash the pandemic — and as central banks cautiously cease lubricating the world with cheap money — international commerce will revert to its previous pattern, growing more slowly than global GDP. The pressure on ports will ease accordingly.

    And what of calls for new investment? Most of the world’s big container terminals are either owned by large multinational operators or by the major container lines themselves. If they think there’s a case for building high-density storage areas, lengthening wharves, or buying bigger cranes, more power to them: they are run by smart people who are paid to make hard-nosed investment decisions.

    The risk comes when the ship lines and their consultants try to squeeze money out of governments that are unlikely to be as sophisticated. Publicly owned container terminals that expand at the peak of the market may end up with more capacity than they need in a slow-growing world. State-sponsored dredging projects to accommodate the largest vessels may have little payoff, especially as the number of container ships calling at most ports will continue to decline. Since its inception, container shipping has been a boom-or-bust industry, and that pattern does not seem likely to change.

  • Too Damn Big

    Not too long ago, I had a chat with a high-ranking executive at a major container shipping line. The subject was new ships. “Those guys on the operating side always talk about how the bigger ships have lower costs,” he said, shaking his head. “They don’t see the bigger picture.”

    The bigger picture is that the container shipping industry’s enthusiasm for size has brought it nothing but headaches. Changes in trade patterns, still in their early stages, are likely to make the problems worse. And yet most of the major ship lines can’t help themselves. In October, Mediterranean Shipping Company, the Switzerland-based company that is the world’s second-biggest container carrier, said it would acquire five megaships, each able to carry 23,000 20-foot containers — equal to 11,500 truckloads. Evergreen Marine, a Taiwanese line, just ordered six ships of the same size. Hyundai Merchant Marine has a dozen ships of that size on order, with deliveries to begin next year. CMA CGM of France, the fourth-largest container line, has several on the way. All of these vessels, it is worth noting, are larger than any containership now in commercial service.

    The attraction of megaships is clear enough: if it is filled to capacity, a ship able to carry 23,000 twenty-foot-equivalent units — TEUs, as they’re called — has much lower operating costs per container than a tiddler carrying, say, 15,000 TEUs. But that is a very big “if.” With international trade growing slowly, there’s a lot of unused capacity on voyages from Asia to Europe, and on the reverse voyage from Europe to Asia empty containers, which travel at very low rates, are often the main cargo. The ships are too big to call at many ports and to fit through the recently enlarged Panama Canal, so they don’t serve North America. While a fully loaded megaship is highly efficient at sea, it can cause chaos in port by discharging or loading thousands of containers at a time, delaying customers’ deliveries and erasing many of the putative benefits of large vessels.

    Recent economic trends pose an additional challenge. The world’s ten largest container ports all are located in Asia, seven of them in China. This is important for containership economics, because only a very large port is likely to amass enough outbound cargo to justify frequent calls by very large ships. But due to rising wages in China, trade sanctions in the United States, and businesses’ increased attention to risk, manufacturing of many widely traded goods — clothing, footwear, consumer electronics, toys — is shifting from China to such countries as Vietnam, Bangladesh, and even Ethiopia. This shift is visible in the fact that Chinese ports such as Hong Kong, Qingdao, Xiamen, and Dalian, all of them larger than any port in North America, have seen traffic flatten out or decline. Few of the new manufacturing hotbeds, though, export enough to Europe to justify a 23,000-TEU ship dropping by.

    A few people in the shipping industry appear to recognize the insanity of the race for size. The chief financial officer of Maersk, the largest container line, said in November that “there are no intentions now to invest in any large vessels.” Cosco, the state-owned Chinese ship line, seems to have retreated from rumored plans to order 25,000-TEU vessels. No doubt, operating such vessels would bring prestige. But when it comes to making a profit, they’re too damn big.