I hate big boats and you should too.
In 2006, Maersk stunned global shipping by introducing Emma Maersk, a container ship that could carry nearly 15,000 twenty-foot equivalent units. (TEU translates to about half a standard forty-foot container.)
Emma Maersk set off “arms race” with its introduction. Ocean carriers ordered larger and larger ships, believing that they would be able to achieve economies of scale if they could sweep all their supplies into one large boat instead of several small ones.
Today we seem to have reached the peak of the Great Boat era. “Emma Maersk” is now weak near real megakarablyami 2022. The largest container vessels to be delivered this year have a maximum capacity of 24,000 TEU. (This class of ship is called – I don’t invent it – “Always a lot.” The Evergreen shipping company is the same the Suez Canal was blocked last yearordered a record-breaking ship.)
Each year brings a new, more than ever, megakarabel. This year’s largest ship class has increased by 50% from 2012 to date, or almost six times from 1981 to date.
Huge container ships helped to cause serious havoc in world trade. This week I spoke with four experts to find out how mega-ships are the insidious cause of much of our current shipping crisis.
1. They underlie the global shipping oligopoly.
World shipping is dominated by Fr. several giant firms. But this was not always the case.
In the 1970s, there were so many ocean carriers that no company controlled the industry. Since then, the market has consolidated into several large firms.
Up to 60 of the 100 largest ocean carriers disappeared from the 2000s to today, thanks to a wave of bankruptcies and takeovers. The top 10 ocean carriers in 2000, occupied 51% of the market; today they dominate 80% of it, according to White House newsletter. All of these companies are based outside the US
Smaller ocean carriers have begun to form alliances with each other to compete with larger ones, said Campbell University professor Mercollian’s Sal. Megashippers decided to copy the strategy. Today, the largest ocean carriers are organized into three major container alliances: 2M, The Alliance and Ocean Alliance.
To send something, say, from China to Los Angeles, you will reserve places on kanteyneravoze, which is controlled by one of these alliances. Each company shares space on kanteyneravoze with other members of the alliance. But these alliances can be abolished – or to have “empty swimming” – if demand fell.
This system was great for carriers’ own financial performance. Some argue that this consolidation and alliance system is leading to inflated rates.
The Loadstar, a global logistics publication, that the 2M alliance stops at least three Asia-Northern Europe currents. One of the reasons for the cancellation was the new Chinese blockade of COVID, but Loadstar also pointed to the desire of 2M to “stop reducing rates” amid falling volumes from China. More canceled sailing means less carrying capacity and probably higher rates.
Mercalliano said the container shipments had steadily increased in size since their creation in 1956. Ocean carriers believed they could achieve economies of scale if they built giant ships. The idea was to put all your cargo on one massive ship instead of two or three smaller ones.
Conrad told FreightWaves that ocean carriers are ideal lending targets. If the ocean carrier does not repay the loan, you can simply repay any of its ships. And, conveniently, many receive significant subsidies or other support from the governments of the countries in which they are located. Prior to the financial crisis, banks were happy to provide massive loans to ocean liners to build the megaships of their dreams.
Then came 2008. As Mercollian said, “the cargo has dried up.”
Large ocean liners were stuck with massive ships and not much was put on them. Many went bankrupt, and those who remained formed alliances.
“Firms have started saying, ‘Well, these ships are huge investments, and there’s too much money on the line,'” said a professor at the University of Vermont. Richard Sicott. “Let’s share the potential between the different companies that are supposed to be our competitors.”
In the 2010s, consolidation accelerated. Eight major carriers, including the 6 largest oceanic airline Hanjin, have either gone bankrupt or been acquired other large firms.
Nobody noticed the “cartel”?
Importantly, the lack of competition did not bother anyone during the 2010s, when rates in the ocean were absurdly low and carriers made little or no profit (if at all). Alliances and consolidation were the only way to make the economy work. Surprisingly, companies continued to build even larger mega-ships, still chasing these economies of scale, loading them even more into debt.
“Because there are so few left, they created these alliances to stop offering each other low rates,” Mercaliano said. “The US, the EU, China, all supported the idea that these are not cartels. They are not trusted. The reason we did it is that we all benefited from it: we love cheap freight. Transportation of goods across the Pacific Ocean cost nothing.
Everything changed in 2021 when there were carriers rake in cash.
The Biden administration called these shipping companies are “cartels”. Recently stated by some importers that ocean carriers raised the price and failed to fulfill their contracts amid sky-high ocean rates. On the other hand, Greg Miller of FreightWaves recently claimed this .
Whether or not these carriers fix prices, we can hardly decide in today’s newsletter, but we can agree that this consolidation – driven by the inability of individual companies to fill their own mega-ships – probably wouldn’t have been so drastic without these big damn ships.
2. They cause port congestion.
The more obvious reason that large ships help cause our constant chaos in supply chains is that they are literally too big to fit into most ports. Last year, even the Suez Canal could hardly accommodate one of these mega-ships, which led to the fact that last year the crucial global canal was killed for several days.
Matt Stoller, who is the director of research at the U.S. Economic Freedoms Project, told FreightWaves that these megaships are great for moving large amounts of cargo across the oceans. The problem is once you get to your destination. Ocean carriers (and the financial institutions that finance them) do not pay for upgraded ports, increased dredging, new warehouses, highways and so on to accommodate these ships. Stoller said the cost is being dropped from the public.
Indeed, as Mercallian noted, the management of the port of New York and New Jersey has spent a whopping $ 1.7 billion raise your Bayonne Bridge for accommodation new mega-ships of shipping descendants – the price paid by taxpayers, not ocean carriers or shippers.
One complex is great for accommodating these ships: the ports of Long Beach and Los Angeles. The result is this claims 40% of all U.S. maritime imports. Before the US saw historic imports in 2020 and beyond, this system worked pretty well. But this has been the case for the last year perfectly reinforcedcausing unprecedented supply chains as importers struggled to unload their containers and loaded empty ones back to return to Asia.
If these ships weren’t so gigantic, we probably wouldn’t have seen this kind of congestion. Ocean carriers could deliver their ships of normal size to other ports around the United States. Stoller was pushing for more competition among ocean carriers, which might mean more diverse types of ships.
“We have a lot of ports in this country, but we don’t have enough ocean carriers,” Stoller said. “Boats ocean carriers are too large for most ports.”
3. They are the cause of low financial struggle ocean carriers.
Participating in the “arms race” of megaships, ocean carriers really just played by themselves.
One study in 2016, conducted by consulting firm AlixPartners pointed to the “irony of megaships.” In 2016 and 2017, global ocean capacity increased by 4.5% and 5.6%, respectively. But in those years the demand grew by only 1-3%. The panic associated with the construction of larger and larger ships led to depression:
Ironically, the study says the resulting overcapacity – and the corresponding negative impact on profits – is partly the result of the industry’s drive in recent years to correct a chronic imbalance of supply and demand by building these more efficient but huge ships.
A few months after this report, the 6th largest container company went bankrupt. Handin, who ordered to its insolvency was in $ 10.5 billion in debt.
Constantly filling the market capacity, ocean carriers reduced their own shipping rates. This left them with a crushing debt and have not been able to get it back. COVID and the influx of trade helped many carriers to pay off their big commitment, but the good times will eventually end for these companies.
Thanks! The megaship holds our oceans is be loosening.
Brilliantly, it seems, ocean carriers read my mind and hasten the end of the era of big boats. Of the thousands of container ships planned for the next few years, the largest category is ships with a carrying capacity of 3,000 to 7,999 TEU, according to a recent Clarkson Research report.
As for deliveries planned or already made from this year to 2025, 53 are vessels with a carrying capacity of 17,000 TEU and more, compared to 230 vessels with a carrying capacity of 12,000 to 16,999 TEU.
Maybe I shouldn’t be talking so fast. One 2016 article in the Financial Times, covered by a study by Drewry Shipping Consultants, argued that if ships reach 24,000 TEU, the cost of operating such a ship will exceed the profits from being able to hold so many containers. That would mean a loss for the ocean carrier.
And yet, dear reader, the shipping magnates have gone ahead with the ships of 24,000 TEU: at least, a dozen can sail as you read this. (Or maybe they’re waiting to unload at Port Long Beach.)