The Hidden Costs of Containerization

This article stresses the awful situation seafarers find themselves in, as a result of ships being stranded offshore unable to unload or load, and national COVID rules about flying and debarking, which prevent them from getting home when their time at sea ends. It’s a terrible situation, and countries have not done enough to make it better. International organizations such as the ILS don’t really have much influence in the face of the pandemic.

That’s not the only cost of containerization. Just like Amazon packaging, empty containers are overwhelming America’s ports, and large ports elsewhere. Countries that import more than they export are at risk of a buildup of empty containers. The original idea was that they would go back cheaply to exporting countries, kind of like HP empty printer cartridges, to be refilled and sent again, an example of a reverse supply chain.

Enter the Chinese steel industry, and Chinese nationally-backed container manufacturers. Cheap steel in China and a huge demand for containers has conspired to let these firms make new containers for just about the cost of bringing the empties back. One could argue that it’s better to use a new container because it’s less likely to have hidden damage that might affect the cargo, and that might offset the small price difference. Also eliminated is the coordination overhead of managing the shipment of empties, and then matching the empty used container with a shipper that needs it, and getting it to the loading spot.

The article also points out that the very large container ships of today have caused enormous capital investments at ports around the world. Their draft of around 50 feet meant that harbors needed to be deepened, bridges raised (New York); and their length meant that extra-long quay space is required, cutting out space for smaller barges and feeder ships (Rotterdam, Antwerp) which meant that inland transport of goods (and return of empties) could not be as efficient and timely.

The huge capital investments at ports also created winners and losers. Ports that invested reaped the benefits of increased traffic. A port is an economic engine in its neighborhood, providing jobs and business flow. Ports that did not or could not invest can no longer count on ships coming.

It’s interesting that now, in the midst of the congestion panic, a few larger shippers are forsaking the world of the megaships and alliances. They are chartering smaller container vessels themselves, buying their own containers, and seeking ports that don’t have the same level of congestion. IKEA, Amazon, Wal-mart, and others have sufficient cargo flow that they can invest in this bypass to the ocean carrier-dominated shipping scene. This could prove a boon to smaller ports who did not invest before, but who can handle the smaller ships.

It’s an old adage of operations management that a lean system will reduce batch size. In terms of our supply chains, that would mean smaller ships, more frequent sailings, and use of a wide variety of ports. And it would spread the wealth and the environmental issues shipping brings over a wider landscape.

BY AMIR KHAFAGY FEBRUARY 2, 2022

The Hidden Costs of Containerization – The American Prospect

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