It seems that despite all the fuss last year about the size of container ships and all the studies showing that they should not be built, the trend is continuing. I’ve maintained all along that the cost savings just can’t be ignored, and big ships will continue, maybe getting even bigger. Now we see there’s not a reversal yet, despite the academics. These new ships will be in the range of 24000 containers. Mike Wackett’s article does a good job of examining the tradeoffs and the actual geometry and stacking of the containers that’s contemplated. And see the followup piece below in the same journal the next day.
Another interesting fact in the story is the divergence on what to use for energy. One line is going for LNG power, the other for conventional fuel with stack scrubbers. But clearly the environmental concerns are holding up, and companies are making plans to deal with the new regulations on environmental emissions from ocean carriers.
There’s been some written about the efficacy of scrubbers vs LNG and the economic and engineering tradeoffs aren’t totally clear, but clearly there are merits on both sides of that debate.
This followup piece is interesting in that more people are shipping smaller packages than container-size. This means that consolidation will be a key function. that is where 3PLs have a role. The carriers and especially ports need to get in that service business also, and make the process seamless for their end user customers. It’s a big challenge, requiring a lot of cooperative activity. Not the carriers’ or ports’ strong point.
Of course we could use 20 foot containers instead of 40’s but that would just push the problem down a bit. Short term it might be viable though.
What’s the truth? Some experts say that terminals must be able to handle giant ships and therefore few customers, or fail. Olaf Merk (of the OECD) says it looks like a ‘monopsony’; a port has only one or very few customers. Actually according to Alan Manning , who ‘wrote the book’ on monopsony, a monopsony simply means that there is little elasticity of supply (of incoming containers i.e. ships) for the port.
The classic monopsony situation occurs in labor supply; the ‘company town’. It used to be seen in mining and very early, in manufacturing. In a company town, if you want to work, you have to work for the one employer. The firm must raise wages for all employees if it needs more than are available at the town. If it needs fewer employees, it can drop wages. Manning’s book defines labor monopsony as any case in which the labor supply (of workers) is inelastic (relatively vertical supply curve) while labor demand by the employer is elastic (downward sloping demand for labor).
What makes for inelastic labor supply? In the company town it happens because workers feel they don’t have mobility flexibility– it’s too far to the next place to work. But monopsony can happen for lots of reasons– discrimination, for one, can limit workers’ ability to get a different job. In fact, any condition that prevents workers from seeking other work, and thereby constricting individuals’ market for jobs, suffices. Examples include safety on the job, or most recently in the news, forcing truck drivers to lease their trucks through a drayage firm. The huge lease obligations pin the drivers to the job, and they lose control of work conditions and in the case of trucking, pay scales as well, since the drayage work in US ports is often piece work rather than (often unionized) pay by the hour.
In the port example the port is the labor supply– if the port is forced to upgrade to support ULCC ships in the 17-20KTEU range, it will be captive to those carriers that wish to run those big ships to it. These consume so much port capacity that the port will not be able to solicit other jobs from smaller ships. If it does, congestion will result. The very few carriers calling there with their ULCCs will demand lower prices to land, and the port ‘wage’ will decline. That naturally also affects their profitability.
And the ports that don’t adapt to the large ships will not be able to get work at all, or nowhere near as much. It’s like the people living too far from the company town (on the remote farms) who will fall out of the labor market for that firm.