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Free Market Forces Demanding Lower Container Shipping Costs

By Harry Valentine 06-06-2013 09:42:00

Over the course of the history of maritime transportation, the free market has consistently urged service providers to reduce the cost of transporting freight. Market forces were in effect when flat-bottomed, wind-driven boats could only sail with the prevail winds and when merchants rode on horseback carrying merchandise along the Great Silk Road between East Asia and Europe. Maritime transportation productivity improved when boats with a moving sail and a keel under the hull appeared during the 8th century. Crews of 3-men could sail such watercraft at an angle of 30-degrees into a prevailing wind.

Dhows could carry more freight and incur lower operating costs than boats that had to be rowed by slaves. At the time, they could do high-priority deliveries of spices and merchandise from Bombay to Babylon and at much lower costs than merchants who rode the silk roads on horseback. The free markets’ ongoing demand for cost competitive freight transportation has continued almost unabated over a period of centuries. Concurrently, the volume of trade and freight that the transportation sector carries domestically and internationally has steadily increased. The trend is projected to continue over the forthcoming decades.

In recent months, the free market at Shanghai has demanded lower shipping tariffs for containers and at rates that are below the breakeven point of most ship companies. The operation of even very biggest container ships afloat is barely viable at such low rates. That ongoing demand for cost competitive service is likely to pressure naval architects and ship designers to explore multiple methods by which to increase productivity and competitiveness of the service. There are historical precedents in service improvements from the world of trans-oceanic transport that may still be relevant to present day international transportation.

One relevant precedent originates from the trans-Atlantic passenger transportation sector, at a time when passenger ships and propeller-driven aircraft served the trans-Atlantic market. At that time, Boeing introduced a then revolutionary design of jet-powered aircraft, the model 707. Transportation analysts claimed that the trans-Atlantic passenger market was too small to warrant the introduction of such technology, citing that there were barely enough passengers to fill the trans-Atlantic ocean liners and propeller-driven aircraft of the period. However, within a decade of its introduction to service, the trans-Atlantic passenger market had grown by 10-fold.

The Boeing 707 could fly at double the speed and in thinner air located at 3 to 4-times the altitude at which propeller-driven aircraft flew. It could burn an alternative lower cost fuel at less fuel cost and incurred lower crew cost per trip and per passenger. In short, the Boeing 707 operated at much higher levels of productivity than competing long-distance aircraft. Boeing’s marketing strategy combined more productive use of cheaper fuel with reduced staff time per trip aboard a more productive technology. At the present day, there may be an untapped market niche for such strategy.

The free market in international freight transportation involving containers at Shanghai may be issuing a very tacit and very blunt directive to the international transportation sector in terms of future service demands and tariffs. It is unclear as to whether that directive is calling for evolutionary or for revolutionary change in the still evolving and developing world of international transportation. In response, there may be scope to explore aspects of both evolutionary and revolutionary changes in the world of future of international freight transportation. The trend of evolutionary change involves ship designs that will carry even more containers.

Greater Carrying Capacity:

The biggest container ships can barely break even when carrying containers from Shanghai. Converting a few bog ships to barges would increase container capacity while a power unit carried aboard a towed catamaran twin hull vessel may provide electric power to azipods installed under the barge. An oceanic train of super barges that sail extended voyages would realize fuel savings due to the trailing barge sailing in the hydraulic shadow of the barge ahead of it. Super barges that serve a group of nearby ports may be assembled into trains at a super seaport.

The oceanic train may sail to a super seaport located in another part of the world where the train would be divided, with individual super barges being sailed to nearby ports and with local coastal and inland boats as well as railway and truck transport. There may be potential market application for oceanic trains of super barges that sail between distant super seaports while carrying containers and/or bulk freight at competitive transportation costs. Such technology may represent a possible future assignment for maritime research personnel at various shipbuilding yards.

Staff Productivity:

As ship capacity increases, staff productivity will also indirectly increase. At the present day, it is possible for computers to navigate a ship across an ocean. Modern telecommunications technology may also allow staff located on land to assist in navigating a super ship on the ocean. Computer programmers and telecommunications researchers would need to develop technology to allow unmanned ships to sail the ocean, without unauthorized personnel using telecommunications technology to gain access to the ship’s controls. Faster maritime craft that spend less time at sea would also increase crew productivity and reduce staff costs.

Vehicle Productivity:

There is an international market for airfreight transportation services, including aboard jumbo aircraft that carry only cargo. These aircraft fly between main domestic and international centers located across Asia, Europe and the Americas. Their time duration in transit is a fraction of that of ships sailing between the same pairs of cities, making more productive use of technology and staffing. Airfreight does incur a high cost of energy that customers cover. The nature of international freight market suggests the possible presence of an as yet untapped international freight transportation market.

Research and testing into wing-in-ground-effect vehicles has revealed that large versions of such technology could carry double the weight of the largest freight aircraft, while consuming about 50% of the energy. While much faster than a container ship, its time-in-transit is greater than conventional airfreight and may be competitive on several trans-oceanic routes, including across the Russian Arctic ocean. During testing, super-size wing-in-ground-effect craft have ‘sailed’ at a recorded altitude of 60-feet or 18-metres above seawater while future designs are expected to ‘sail’ at 100-ft or 30-metres above ocean, with clearance above ocean waves and Arctic ice.

Conclusions:

The international transportation market is sending signals that suggest a call for lower shipping costs. Those signals are an invitation to the international transportation service sector to develop new ideas as to how to meet the future market demand. There may be scope to borrow strategy from successful precedents that during an earlier time improved transportation productivity. A few manufacturers are already researching possible future designs of maritime technology, with schematics on the drawing boards.

Harry Valentine is a frequent contributer to the MarEx e-Newsletter and can be reached at harrycv@hotmail.com.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.