The congestion on the Suez Canal will soon ease, but giant container ships like the one that blocked this crucial passage for almost a week and caused headaches to shippers around the world are nowhere going.
Global supply chains were already under pressure when the Ever Given, a ship longer than the Empire State Building and capable of transporting furniture for 20,000 homes, was wedged between the banks of the Suez Canal last week. It was liberated on Monday but, according to AP Moller-Maersk, the world’s largest shipping company, “left disruptions and residues in global shipping that could take weeks, possibly months, to resolve”.
The crisis was brief, but years were in the making.
For decades, shipping companies have been building ever larger ships, driven by a growing global appetite for electronics, clothing, toys and other goods. The accelerated growth in ship size in recent years has often made economic sense: larger ships are usually cheaper to build and operate per container. But the largest ships can have their own problems, not just for the canals and ports they have to navigate, but also for the companies that build them.
“They did what they thought was most efficient – that made ships big – and didn’t pay much attention to the rest of the world at all,” said Marc Levinson, economist and author of Outside the Box. a history of globalization. “But it turns out that these really big ships are not as efficient as the shipping companies had imagined.”
Despite the associated risks, massive ships still dominate global shipping. According to Alphaliner, a data company, the global fleet of container ships includes 133 of the largest types of ships – those that can carry 18,000 to 24,000 containers. Another 53 have been ordered.
The world’s first commercially successful container voyage took place in 1956 on board a converted steamship that transported a few dozen containers from New Jersey to Texas. The industry has grown steadily over the decades since then, but as world trade accelerated in the 1980s, so did the shipping industry – and ship size.
During that decade, the average capacity of a container ship increased by 28 percent, according to the International Transport Forum, a unit of the Organization for Economic Cooperation and Development. The capacity of container ships increased by a further 36 percent in the 1990s. Then, in 2006, Maersk introduced the Emma Maersk, a massive ship that could hold around 15,000 containers, nearly 70 percent more than any other ship.
“Instead of this pattern of small increases in capacity over time, we suddenly had a quantum leap, and that really started an arms race,” Levinson said.
Today the largest ships can hold up to 24,000 containers – a standard 20-foot box can hold a pair of medium-sized sport utility vehicles, or enough produce to fill an aisle or two of grocery stores.
The growth of the shipping industry and ship size has played a pivotal role in creating the modern economy, helping make China a manufacturing powerhouse, and facilitating the rise from e-commerce to retailers like Ikea and Amazon. For the container lines, it made sense to build larger buildings: larger ships enabled them to save on construction, fuel and personnel.
“Ultra Large Container Vessels (ULCV) are extremely efficient when it comes to transporting large quantities of goods around the globe,” said Tim Seifert, spokesman for Hapag-Lloyd, a major shipping company, in a statement. “We also doubt that it would make shipping safer or more environmentally friendly if there were more or less efficient ships on the oceans or in the canals.”
Maersk said it was premature to hold Ever Given responsible for what happened at Suez. Ultra-large ships “have existed for many years and have sailed the Suez Canal with no problems,” said Palle Brodsgaard Laursen, the company’s chief technical officer, in a statement Tuesday.
However, the growth in ship size has generated costs. It effectively gutted port against port, canal against canal. For example, to make way for larger ships, the Panama Canal was expanded in 2016 at a cost of more than US $ 5 billion.
This sparked a race between ports along the east coast of the United States to attract the larger ships that come through the canal. Several ports, including those in Baltimore, Miami and Norfolk, Virginia, began dredging projects to deepen their ports. The New York and New Jersey Port Authority launched a $ 1.7 billion project to build the Bayonne Bridge to accommodate mammoth ships loaded with cargo from Asia and other countries.
The race for ever larger ships also prompted ports and terminal operators to buy new equipment. For example, earlier this month the Port of Oakland erected three 1,600-tonne cranes which, according to a port manager, would “accommodate the largest ships”.
While ports caused costs for the accommodation of larger ships, they could not take advantage of all the advantages, according to Jan Tiedemann, Senior Analyst at Alphaliner.
“The savings are almost entirely on the part of the aviation company. So there was an argument that the air carriers were in the driver’s seat and just got their way with this large tonnage while terminal operators, ports and in some cases the taxpayer I paid the bill, ”he said.
The move to larger ships also coincided with the consolidation of the industry, helping to both limit competition between shipping giants and make the world more vulnerable to disruptions. Large ships are expensive to buy and maintain, and shippers who couldn’t afford the cost have had to find ways to get bigger themselves. Some companies merged, others joined alliances that allowed them to pool their ships to provide more frequent service.
These trends aren’t necessarily all bad. The alliances enable shippers to offer an expanded service and keep costs down for customers. And the fact that larger ships are reducing fuel costs has helped the industry do its part in reducing emissions that cause the planet to warm.
But the argument for even larger ships may eventually fade, even for container lines themselves – a concept known in business as the law of falling returns.
On the one hand, the advantages of a larger building shrink with each growth cycle, says Olaf Merk, lead author of a report by the International Transport Forum 2015 on very large ships. According to the report, the savings from moving to ships with 19,000 containers were four to six times less than the previous ship size expansion. Most of the savings have been made by using more efficient marine engines than the size of the ship.
“There are still economies of scale, but less and less as the ships get bigger,” said Merk.
The larger ships can also call at fewer ports and navigate less narrow waterways. They’re also harder to fill, cost more to insure, and pose a greater threat to supply chains if something goes wrong, like Ever Given’s stranding in the Suez Canal. Giant ships are also designed for a world where trade is growing rapidly, which is far from guaranteed these days, given the high geopolitical and economic tensions between the United States and China, Britain and the European Union, and other major trading partners.