Container shipping: efficient yet exposed
A supply chain view of the factors behind container port congestion
This month we’re looking at container shipping supply chains. Container ships rarely make the news. There’s a fire on a container ship roughly once a month and these events rarely escape sector publications onto more mainstream media outlets. Since Ever Given however, container shipping matters much more. Maybe it’s because there’s a risk that cargo won’t make it to the shelves in time for Christmas.
Efficient yet exposed
Our discussion paper Efficient yet Exposed: Why container port congestion isn’t going away anytime soon analyses some of the key reasons why the container shipping sector has gotten itself in such a predicament.
In short, as shipping lines sought greater efficiency from the economies of scale of bigger container ships, ports and supply chains had to adapt. The outcomes were more robust shipping networks - big ships calling fewer but larger ports. From a resilience perspective, these networks reduced redundancy and exposed global supply chains to disruptions. Ever Given just sparked the fire.
You can read the full report here.
More about shipping lines
As bad as port congestion is for global supply chains, shipping lines are making a killing in terms of revenue and profits. Container shipping lines are forecasted to make over US$ 120 billion in profits this year and Maersk will award roughly US$ 80 million to its employees. It is truly amazing how quickly the tide shifts. Not long ago many carriers were struggling to make ends meet.
Some argue that these massive profits are just a regression to the mean if industry profits are averaged over the last 10 years or so. My main concern is about the incentives shipping companies have to address congestion. In my own research on truck congestion, I found that incentives were one of the best indicators for people and especially organisational behaviors. When shipping lines realise, if they haven’t already, that disruption is good for the bottom line, what will their incentive be to ‘fix’ global supply chains?
I wasn’t joking about container ship fires, have a look at one of the latest ones here.
Container ports
On the port-side, one of the ports suffering from serious congestion has been the Los Angeles/Long Beach complex in the United States. This is THE maritime gateway to the U.S. West Coast, so problems in Los Angeles tend to affect the entire country and neighboring Canada. With congestion getting worse, CMA CGM has decided to take congestion matters into its own hands and purchase the Fenix Marine Terminal (FMT) in Los Angeles.
It’s certainly not a first that shipping line vertically integrate, especially on the port-side. Vertical integration helps companies exert more operational control, however, I am not entirely sure how much of an impact this will actually have on operations. CMA operates U.S. services in an alliance. Of the 8 U.S. West Coast services the company offers, only 2 call FMT. Either ships will call multiple terminals in LA which means that problems in one terminal will cascade and affect operations in the next or only the 2 services calling FMT will see some operational improvements. Either way, I am keen to see the developments in this space and understand whether there is more depth to this decision than meets the eye.
In other port news, one of the berths of Singapore’s massive Tuas Terminal was completed. This mammoth project aims to almost double Port Singapore’s capacity to 65 million TEUs. For context, Singapore handles more than 36 million TEU per year and is the second largest container port in the world after Shanghai which handles more than 43 million TEU.
Truck driver shortages and last mile delivery
The landside component of supply chains has also seen some heated debates with the U.K., the U.S. and Australia raising the alarm about driver shortages. Trucking issues are important because they can block supply chains just as easily as ships. In this context, this trio of articles about the U.S. driver shortages painted a confused picture to say the least:
The Truck Driver Shortage Doesn’t Exist. Saying There Is One Makes Conditions Worse for Drivers
Many media outlets have become adept at using terms like misinformation, misrepresentation, misconception to categorise issues that contradict some official truths. This seems to be quite frequent when talking about the pandemic, vaccines, more recently about climate change. I just never thought the same approach would be used for the truck driver shortage.
How is an argument constructed to deny an experienced reality? In this case, by confusing causes with outcomes. This quote from the first article perfectly summarises what I mean: “There’s no shortage of workers, that’s the narrative that gets propagated by industry leaders […] We still have a lot of positions that can’t be filled because of the working conditions.” Working conditions are a cause for the outcome which is a lack of people wanting to do the job - which I believe is what a labor shortage is. Somehow the key issue debated isn’t how to attract more workers into the workforce, but what the definition of a labor shortage is.
The key argument in all three articles is that working conditions for truckers are poor. No matter which way the ‘shortage’ is defined, this remains constant. Unfortunately, the rhetoric around defining what a shortage is takes lots of space and time without providing any tangible solutions.
On the last mile delivery front, a project is underway in Berlin, Germany looking at using light rail and the underground as means to support city logistics. Read more here.
This idea might need several iterations to be refined but I can definitely see its merit. Light rail and subway capacity is not always fully utilised especially outside peak hours. Light rail is generally powered by electricity - decreasing its environmental footprint, and the rail network helps circumvent the congestion on the road network. Throw in charging ports for electric scooters and sooner than later distribution centres will relocate next to light rail endpoints.
The next newsletter will analyse the environmental impact of transport fuels, focusing on Australia. Until then, Happy Holidays!