Readers of Supply Chain Matters are aware of our recent string of commentaries that have pointed to what we believe our structural shifts underway in global surface and air freight transportation. Our perspectives have been directed at the blatant realities of quickly changing global sourcing and trade patterns and too much capacity chasing lower transport volumes, or shipper’s desires for most cost-affordable but reliable global surface transportation. Ocean container industry executives need to adjust their expectations to a lower growth of global transport volume, just as a new class of fat larger and more-efficient ocean container mega-ships begin to make their presence on global routes.
There has been much visibility placed on the impacts that the new mega-ships will have on the operations and routes of the various global shipping lines. But there are also implications for major ports, port operators, and the infrastructure services that support these ports.
A recent article appearing in Bloomberg Businessweek calls attention to the significant investments, characterized in the billions, required by major ports to accommodate the new class of “Tripe-E” vessels. It notes that terminal operators at ports such as Rotterdam and Felixstowe in the U.K. are investing billions in deeper channels, larger cranes, longer berths and larger container staging areas to accommodate such vessels. The article quotes Drewry Shipping Consultants data indicating that average vessel capacity on the Asia-Europe trade route rose 7.6 percent to a record 10,279 containers in the first quarter of this year. Drewry further estimates that average size will rise to 11,200 TEU containers by the end of 2013, and 22,000 TEU’s by the end of the decade.
The implication of these trends is that major port operators, who want to remain favored as the destination on prime travel routes, will remain challenged to achieve profitability at levels prior to the 2008 recession.
The impact involves more than just the port operators, since rail and trucking operators servicing these prime ports are also faced with the need for added investments in capacity and efficiency. Compounding all of this are labor agreements. These massive ships require far heightened levels of automation and associated productivity in both unloading and loading operations, as well as in inter-modal transferring. Labor unions have been reluctant to negotiate needs for far greater levels of productivity because of the risk of losing jobs. There are also issues that in some Asia based ports, working conditions for port personnel and crane operators has been less than ideal while some have not been granted desired wage increases for quite some time,. These issues were brought to light in the recent labor dispute and port closing that occurred in the Port of Hong Kong.
The Bloomberg article additionally notes that the older 6000-8000 TEU capacity vessels are now being shifted to other, lower volume or specialized routes, for instance, South America.
In the end, we could observe additional shifts in favored ports across global destinations. Shifting trade patterns, much higher capacity vessels requiring vastly increased port efficiencies and throughput, and complex labor negotiations could all interplay to change some of the landscape in the coming years.
Transportation, sourcing and procurement teams obviously need to keenly monitor these ongoing trends and developments to ascertain their implications to current and future global logistics and landed cost needs.