The shipping industry appears to be in trouble, environmentally and financially

I’ve seen Season 2 of The Wire – “dead girls in a can!” — which is about the extent of my knowledge on international shipping topics, but I do find it broadly interesting. You could argue (and many have) that shipping is the foundation of our civilization. A lot of consumer products couldn’t reach consumers effectively if they were only transported on planes and rail, especially in this “increasingly global world” we discuss very frequently. As always, it’s all about the numbers:

“In 2012, it cost around 2.5 cents to ship a T-shirt from Asia,” says Rose George, author of “90 Percent of Everything: Inside the Invisible Industry that Puts Clothes on Your Back, Gas in Your Car, and Food on Your Plate.” She observes that “if you compare that to shipping before containerization, the transfer costs of getting anything to port, let alone on a ship, were 25% of the cost of the item.” After transport became a marginal expense, all of those other factors, like cheap labor and cheap materials, helped the low-cost apparel industry to explode.

George (who wrote the book linked above and gave the TED Talk at the top of this post) has gone on record as saying that you can’t eliminate shipping unless you want to “reverse globalization.” Honestly, that’s probably true.

Problem is, just like airlines, the shipping industry is a bit of a financial mess:

Trans-Pacific carriers met their schedules just 64% of the time in the  fourth quarter of 2013, said Adam D. Hall, senior director of international logistics with Dollar General. “It was one of the worst on-time performance periods [in the trade],” he said at the Journal of Commerce’s recent Trans-Pacific Maritime Conference in Long Beach. “That for us hurts.”

In such an environment, it’s no surprise that carriers can’t maintain a good portion of their previously announced rate increases. As so often in the past, they seem willing to place market share above profitability. Drewy says ocean freight rates are no longer tied to market fundamentals, and that carriers’ profits are now almost solely the result of cost-cutting. (Such as they are. The world’s top 15 container lines lost an estimated $1.1 billion between 2007 and 2012.)

Shipping companies will play fast and loose with their numbers: they will idle ships, for example, to decrease capacity (and thus drive up rates). Problem: the ships are getting bigger (they can store 9,000 forty-foot containers), making them harder to lay up in a port. Another problem: new alliances (just like with airlines) are making bigger shipping chains competitive, and forcing out smaller chains. Shipping also isn’t a very profitable world because of increasing environmental sanctions, which are a good thing in many respects: essentially, the 16 largest ships in the world account for as much pollution as all the cars in the world. Phrased another way, one major ship can do as much damage as 50 million cars.

We clearly need shipping, though — our goods need to get to us, and we don’t want them coming at a much higher price (which could be the case if other forms of transport need to be used). So, what would the future of shipping look like?

Here’s one idea:

Container ship tonnage grows the fastest among the major vessel categories, increasing two-and-a-half times as the world’s expanding middle class demands more and more of the world’s goods. Bulker tonnage more than doubles in response to imports of coal, iron ore and grains in emerging economies, and so does LNG tonnage with Australia, Qatar and Nigeria the leading exporters and Japan, Europe, India and China the main importers. Tanker tonnage grows the slowest as the world gradually shifts away from oil as the dominant transportation fuel.

And it looks like there’s a new growth market as well:

The report talks about, importantly, the “onshoring” of manufacturing operations in the U.S. as foreign automakers, in particular, recognize the benefits of cheap energy and a highly skilled workforce. But the most interesting point was the assertion that “Latin America is the next big growth opportunity and can be for the East and Gulf Coasts what Asia is for California.” Wow. “Much like the United States in the 1950s, Latin American countries are in the early stages of a growth economy with a newly developed middle class…The demand for American products is growing so rapidly that Walmart revealed in its Q4 2012 earnings that, for the first time, the net sales growth in Latin America surpassed that of Asia.” Bring it on! And the new Canal doesn’t even open for two more years. Imagine what will happen then!

Here are some ideas and potential trends to make the shipping industry more sustainable.

This will sound dumb as all hell, but the most remarkable thing about this to me is that two industries that involve our needs being transported — either in the form of material goods we want, or the ability to see people we love in other places — are completely financially shot, but can’t go away without changing the entire context of our existence. Weird to contemplate, no? (It’s possible the person flying your next plane makes about as much as the person taking your next order at McDonald’s. That doesn’t seem right, no?)

You’ll see articles around like “Is shipping poised for a comeback?” Those articles are moderately interesting, but ultimately moot points. Shipping can’t go anywhere, especially if China grows and Latin America grows. We need to get goods cheaply from Cheap Point Of Production to More Expensive Point Of Consumption. Shipping is the easiest way to do that. It can become more sustainable, sure — hell, it should – but it will never disappear without a complete overhaul of how we approach commerce, retail and our lives.

(Not sure of the veracity of this site, but it appears there’s about 90K ships on the ocean at any given time. I’d say that seems realistic.)

 

 

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