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Friday, 29 April 2016

Towards a paradigm shift in container shipping?

The dominant paradigm in container shipping is “economies of scale”, but we might be heading for a paradigm shift. Away with mega-carriers, mega-ships and mega-ports! Instead:

  • Smaller carriers with fewer assets, less debt, more flexibility; carriers that actually compete with each other.
  • Smaller ships to provide more tailor-made solutions to customers.
  • More ports called, also to smaller ports with their own local catchment areas, rather than hub and spoke plus long land transport legs.

How could this happen? Five possible drivers.

First, look at the flows. Intra-Asia containerized trade is already four to five times bigger than the Asia-Europe or Transpacific trade. Mega-ships only make sense over long distances: you need a relatively large number of sea days to make the business model work. The rise of intra-continental flows and near-shoring does not rhyme with more mega-vessels. It is the smaller players with the smaller ships that make the profits here.

Second, shipping lines might realize this and be considering new models. In a press message last summer that went relatively unnoticed, Maersk Line seems to suggest this. They ordered a series of 14,000 TEU ships that they would like to deploy everywhere, rather than one specific route. Quite a difference from the classical approach of ordering the largest ship for the Asia-Europe trade and cascading down the redundant ships to other trade lanes.

Third, disruptive change will come from wider application of information technologies. Information reduces the need for middlemen. Supply chains could become shorter and see more direct transactions. We will just have to wait for the Uber of ocean shipping. So, a business model in which mega-assets are a burden rather than an advantage.

Fourth, and related to this: more direct links between buyers and sellers. Large shippers could organize their transport themselves. Which would mean: smaller quantities transported, smaller ships, more direct port calls.

And fifth, regulators might wake up. After all, allowing the concentration of mega-carriers, giving taxpayers’ money to build up ports, freight corridors and an enormous bubble of mega-ships for a sector that imposes its standards to the whole transport chain without prior discussion, does not create jobs and has been fairly passive on corporate social responsibility – does not exactly sound like a very good deal for politicians.

Olaf MerkAdd up these five drivers and ask yourself: what does it imply? My impression: we might be up for a perfect storm.

Submitted by Olaf Merk @shipping_today
This article first appeared: http://shippingtoday.eu/towards-paradigm-shift-container-shipping/

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