Winston Churchill said: “Success is going from one failure to the next with no loss of enthusiasm.”
The shipping industry is dealing with the blows of the past.
“The real future”, a shipping executive said to me recently, “is all about being able to predict what will happen”. Simple enough. After nearly eight years of recession, with no recovery in sight, only a few progressive thinkers are still making money. Maersk Line, the world’s largest carrier of ocean freight, now operates a fleet of ships that can carry 15% of the world’s seaborne goods, and is now buying a fleet of new ships.
Declining container volumes across the industry, generated partly by the slowdown in Chinese growth, means that only the strong will survive. Forward planning must be correct – a truism that has often tripped up an industry cursed with overcapacity.
In the first quarter of 2015, Maersk’s operating profit margin was 11.8%, about 9.8% above the average of its 12 biggest competitors. In each of the past three years, Maersk has earned a profit, when most of its competitors have been losing money.
So, what is the sense of buying new ships in an industry burdened with too many ships, or, for that matter, why should Maersk have formed an operational alliance with its number two rival, Mediterranean Shipping Company? The alliance, and the new ships on order, do make sense. As the scale of container trade gets bigger, the newer, bigger ships cost less to operate than large numbers of smaller ones.
A wholesale reordering of how goods are moved by sea is taking place. Traffic at ports throughout the world is being consolidated, to accommodate the new containerships. A vessel 332 m by 46 m that, until a few years ago, was considered imaginary, can now reach ports that have superior landside infrastructure, as well as sufficient draft and clearance. Ship sizes will go up markedly, in order to carry more cargo at less cost. The cost advantages and convenience of bringing cargo close to the world’s population centres will prove to be compelling. But other ports, that cannot be dredged, will fail and gradually be marginalised.
When a new and expanded set of locks opens in the Panama Canal next year, the new, giant vessels will be able to reach the US east coast, bringing with them as many as seven weekly services, in addition to the 10 current ones. The Port of New York/New Jersey is raising the height of the Bayonne Bridge, which connects New Jersey and Staten Island, to accommodate the bigger ships.
As the container supply chain changes, the cost of transport, thanks to the bigger ships, will go down on a per-container basis. This will revolutionise ocean transport. It will also reduce the expense of crewing, as there will be fewer ships in question.
One of the consequences of this economy of scale may well be the levelling of the playing field, for the first time since the 1940s. We will end up with a revival of traditional flags, including that of the US. If you don’t believe me, just wait.