Discover more from Learning by Proxy with Vivek Srinivasan
Shipping | Learning by Proxy
Shipping is at the precipice of change, the pandemic has put the money and the impetus in place. Is it going to be enough?
Even at the beginning of the 20th century, when goods had to be transported across continents, they were often packed into crates and thrown into trains or ship holds. They were then moved across the continents or oceans and had to be manually unloaded. This was very time consuming and labour intensive work. On the flip side, it created a lot of jobs.
Therefore, an innovation called the Intermodal container which was invented at the beginning of the 20th century did not find widespread adoption till after the second world war.
The first international standard for containers was established by the Bureau International des Containers et du Transport Intermodal (B.I.C.) in 1933, and a second one in 1935, primarily for transport between European countries. American containers at this time were not standardized, and these early containers were not yet stackable – neither in the U.S. nor Europe. In November 1932, the first container terminal in the world was opened by the Pennsylvania Rail Road Company in Enola, PA. The development of containerization was created in Europe and the US as a way to revitalize rail companies after the Wall Street Crash of 1929, in New York, which resulted in economic collapse and a drop in all modes of transport.
In April 1951 at Zürich Tiefenbrunnen railway station, the Swiss Museum of Transport and the Bureau International des Containers (BIC) held demonstrations of container systems for representatives from a number of European countries, and from the United States. A system was selected for Western Europe, based on the Netherlands' system for consumer goods and waste transportation called Laadkisten (lit. "Loading chests"), in use since 1934. This system used roller containers for transport by rail, truck and ship, in various configurations up to 5,500 kg (12,100 lb) capacity, and up to 3.1 by 2.3 by 2 metres (10 ft 2 in × 7 ft 6+1⁄2 in × 6 ft 6+3⁄4 in) in size. This became the first post World War II European railway standard of the International Union of Railways – UIC-590, known as "pa-Behälter." It was implemented in the Netherlands, Belgium, Luxembourg, West Germany, Switzerland, Sweden and Denmark.
By the 1960s the container was standardised across the shipping industry and 3 sizes of containers existed. 20-foot, 40-foot and 45-foot. The Americans with their panache for non-standard nonsense also use the 48-foot and the 53-foot container; although this is not ISO approved.
The intermodal containers had a standard size, an interlocking mechanism on the corners of each container which make stacking possible. This led to a massive re-design of cargo ships that could now carry several of these containers on the deck and have them unloaded in a mechanised manner speeding the whole process. Ships have since gotten bigger and bigger. The largest container ships today - Ever Act and Ever Ace - (from the company that owns Ever Given) can carry 24000, 20-foot containers.
It takes 72 seconds to unload a single container at the Los Angeles dock. Do the math.
In March 2020, the global economy began to slow down. Lockdown and stay at home mandates were being issued across the world. The immediate consequence was empty shelves in retail stores across the world. People began buying and hoarding stuff anticipating the unknown. Supply chains across the world were struggling to cope.
On the one hand factories in China, the epicentre of the outbreak had been shut down. Orders were pouring in from across the globe.
And then something even more strange happened. Sitting at home, locked up, people found buying power. In the 6 months from March 2020, the demand for e-commerce doubled in the western world. These buyers were exposed to a host of new products that they would not have normally seen on store shelves and bored at home orders started flying.
The absence of restaurant visits and other such recreations left a lot more disposable income in the hands of people. This also helped e-commerce find more users.
Further, online spending changes our relationship with money. When you spend cash of any amount, just the tactile action of counting and giving away the money causes you much grief. This is lacking when all that changes is just a few numbers on a screen. You do not feel that loss. You shop more.
With dockworkers and truck drivers on leave, orders started arriving into the harbour only to be stored at the dock, so that the ships could leave back. The shipping companies started loading more and more containers on the ships only to leave them in storage at an American port, causing a shortage of containers which caused the price of containers to skyrocket 500%.
Eventually, the ports had to stop unloading because their storage areas were full. Truckers could not move the containers fast enough. Also, Trucking is a hazardous business on good days. Accidents, theft and truck jacking are all issues that they have to deal with normally. Being exposed to a life-threatening disease in addition to that was not something a lot of American truck drivers wanted to deal with.
The trouble today is that even if all the ships arrive and all of them get unloaded, there are just not enough trucks to transport them to their final destination. So everything, from Diapers, furniture, cycles, electronics, and of course toilet paper and lots more is stuck at the docks across the world.
The high prices have meant, incredible profits for all of the shipping companies. When you make profits, you invest.
In February, the shipping line decided to invest some of its windfall by buying four used Airbus jets and starting a new airline, inventively named CMA CGM Air Cargo. On Sept. 29, the company doubled down on that decision and bought two new Boeing 777 Freighters. It’s no small investment: Each of the new planes costs about $350 million—or, to put that another way, about eight times the quarterly profit CMA CGM was making before the pandemic.
I am doubtful that shipping companies will be able to see great returns from such investments because the economics of air freight is very different to that of ships and also demand for it does not tend to be as high.
But when the demand for an item is high, the futures market is never too far away...
Retailers want to avoid paying spot rates—the one-off prices for companies buying unplanned, last-minute space on a container ship—which have soared during the pandemic. Aside from being expensive, spot shipping is also an unreliable way to move goods, because companies can’t always find a ship that will sell them ad hoc cargo space when they need it.
One option is signing expensive, long-term shipping contracts at rates much higher than any retailer would have paid before the pandemic.
Some of the larger players like Amazon are planning to get their own ships. But there might be something good that might come out of all of this...
Nine global retailers, including Amazon, IKEA, Unilever, Patagonia, and Inditex, the fast fashion retailer that owns Zara, announced today (Oct. 19) that they will aim to progressively switch to zero-carbon vessels to ship their goods by 2040.
The companies, who charter cargo space on ships by the millions of tons, were convened by the Aspen Institute nonprofit, and the announcement is intended to galvanize an industry that has so far been moving slowly toward reducing its carbon emissions. Shipping makes up about 3% of the world’s annual global emissions, a substantial share—if the ocean were a country, it would be the sixth largest CO2 emitter in the world.
Shipping is one of the biggest sources of pollution in the world. It is also a very slow-moving industry. Building a ship takes 3 years and change cannot arrive very quickly, also it takes a lot of time to recoup the Billions spent on building a single vessel. But if all of this extra cash in the system can be used as an incentive to move an industry such as shipping towards greener alternatives, it can bring the costs of emission-free shipping down and may in the end nudge the entire industry in that direction.