The economics of heavy loads

Containerization — the system of freight transport that utilizes standardized containers to move goods via ships, trains and trucks — is how electronic equipment, automobile parts and fruits and vegetables (in refrigerated containers) get hauled around the world. The container-shipping industry has undergone enormous changes since its inception in 1956. In 2012 it represented 55 percent of all seaborne trade in terms of value, not counting bulk cargo such as oil and ores.

The rapid spread of container shipping around the globe has been matched by the tremendous growth in the size of ships. Today, a mega-ship like the “Christophe Colomb,” which departed from Hong Kong Nov. 29 and docked in Southampton, U.K., Dec. 24 (a trip documented by Al Jazeera contributor Maya Jasanoff), costs approximately $220 million to build and can carry 13,000 20-foot boxes (20-foot equivalent units, or TEUs). Just 10 years ago, the industry was adjusting to the introduction of 5,000-TEU vessels. The carrying capacity of even the “Christophe Colomb” is being exceeded, with 18,000-TEU ships beginning to enter service in 2013. No other transport mode (road, rail, air) has witnessed this more than tripling of equipment capacity in the space of a decade.

As the industry has grown in scope, vessel ownership and the companies’ relations with port cities have evolved. Such fast growth has had a transformative effect on the carrier companies, which must merge, form alliances and consistently innovate in order to remain competitive. It has also impacted port cities that rely on the cargo carried by the mega-ships — and must often pay a hefty price tag for them.

In the early years of containerization, the industry was dominated by U.S. shipping lines. The biggest carrier was Sea-Land Industries, which was established by Malcolm McLean, an American transport entrepreneur who is credited with fueling the container revolution. Another major U.S. carrier was American Presidents Line (APL), an innovator in linking ships with rail services — which resulted in intermodal networks, which can transport goods with minimal interruption between various modes of transport. But by 2000, all the important U.S. companies had disappeared, having been taken over or merged with other companies. A similar fate befell the early European adopters of containerization, such as P&O, NedLloyd, CGM and Italia.

The new leaders are either formerly small European or relatively new Asian companies. For example, Sea-Land was taken over by the Danish carrier Maersk, and APL by the Singaporean Neptune Orient Line (which decided to keep the APL name). The shift in ownership from the U.S. to Europe and Asia has been striking. A factor in the demise of the U.S. carriers is the requirement, set down in the Jones Act of 1920, for U.S. ships to employ American crew and to have been built in the U.S. — a very costly disadvantage.

The emergence of the Asian carriers, on the other hand, is partly explained by their position in the fastest-growing markets. There is a big difference between the Asian and European carriers, however. Many of the big Asian shipping lines, including Japan’s Nippon Yusen Kaisha (NYK) and Mitsui O.S.K. Lines and South Korea’s Hanjin, are subsidiaries of private conglomerates, including banks and manufacturing industries. (NYK, for instance, is a Mitsubishi company.) Other Asian carriers, such as China Ocean Shipping Co. and APL, ultimately are state-owned enterprises. Theoretically, at least, all these carriers have access to significant capital resources. They tend to be more conservative in their policies, seeking more long-term goals and frequently joining to form strategic alliances and mounting joint services by combining resources.

The biggest container-shipping lines today are European: Maersk, the Geneva-based Mediterranean Shipping Co. (MSC) and France’s CMA-CGM. They are also largely family-owned companies, and in the case of MSC and CMA-CGM, are managed by family members. These companies have been the most dynamic in the shipping industry, investing in new vessel sizes, introducing new service features and playing very proactive roles in a complex and challenging industry. Their success has been due in part to their ability to respond quickly to market opportunities. Until recently they have tended to operate alone, especially MSC, except in smaller markets. But lately the three European carriers have begun to operate joint services on some of their mainline Asia-Europe routes because of difficult market conditions.

Do the joint services of already giant companies represent a monopoly? Is there too great a concentration of power in container shipping?

So far, the answer is no. The industry continues to be dynamic and open: In 2012, industry leader Maersk accounted for only 14.7 percent of container-shipping capacity worldwide. (The bigger question lies in smaller markets, including Africa, where only one or two carriers provide service.) A number of new companies appear each year in the list of the top 20 carriers, as established firms slip or are replaced. Despite the strategic alliances, shippers have a choice of services on the main routes.

And while the container-shipping industry has had to invest massively in new ships to remain competitive, many of the costs of container shipping — like new port infrastructure — are borne not by the shipping lines but by the public.

The “Christophe Colomb” has a draft of 16 meters — the distance between the waterline and the deepest part of the ship. Few ports, like Hong Kong, have natural water depths to accommodate such mega-ships, and this limits where the ships can sail. The “Christophe Colomb,” for example, will not be able to pass through the Panama Canal, even after an expansion project, scheduled to be completed by 2015, widens and deepens its channels. Ports face difficult choices: If they want to attract these ever-larger ships, they must deepen their channels through dredging or expand the port to sites where these required depths are available. The port of Shanghai, for example, has built its new container facilities on islands in the East China Sea and has linked it with an 18.6-mile bridge to the mainland.

Either solution — dredging or expanding — is very expensive.

Terminal space and approach channels are usually funded by public capital. How justified are the demands for ever more investment by the public when the need is being generated in response to decisions by private companies that are being driven by considerations that benefit their bottom lines?

This is a question that has been posed many times by some academics, by many politicians and by public-interest groups. Queries include justifying dredging on the basis of the number of ships that require the deepest channel depths. Fewer than 3 percent of all container ships require 15 meters of water. New York and some other U.S. ports are dredging or have recently dredged to 15 meters. But the “Christophe Colomb” draws more than that, and Maersk’s new triple-E-class ships are bigger still.

A counterargument has always been that unless a port has the conditions required by the shipping lines, they will not come and the port and its region will suffer economically. Port authorities see themselves in a very competitive market, with lots of rivals that would love to poach shipping lines from them. These arguments have won out in most cases. However, there are examples of ports — such as Baltimore and Amsterdam — where public investments have been made, only to find the shipping lines have failed to take advantage of them. The losses, in those cases, are borne by the public, and the shipping lines lose nothing.

With shipping such a key facilitator of global trade, the internal changes of the industry have a large impact beyond its immediate reach. The voyage of a mega-ship like the “Christophe Colomb” is evidence that container shipping enables consumers to obtain products from almost anywhere in the world at very low cost. But as ship sizes grow, fewer ports will be able to receive them. There will thus be a concentration of ports selected for service; some ports will be winners, and some losers. It remains to be seen whether this concentration will produce congestion not only in the ports but also in the port cities and the land-transport modes that link them with inland markets.

Whatever happens, though, one thing is clear: The box is here to stay.