Some shippers welcome larger container ships and carrier alliances as a way to add capacity and restore carriers’ health, but they warn that ports will have to adjust to avoid bottlenecks and added costs.
Larger ships were the theme of the Virginia Maritime Association’s annual international trade symposium, where several shippers said they believed economies of scale and other benefits will offset the risks.
“To my mind the mega-ships have the ability to bring product faster, hopefully less expensively, more timely, to my customers,” said Holly Pearce, director of international logistics at Lumber Liquidators Inc.
Marlon Jones, manager of international distribution at International Paper, said larger ships and vessel-sharing alliances could offer container ship lines a financial lifeline that benefits shippers by preserving carrier competition.
“I think we all know that financially the carriers aren’t in the best shape. That affects everyone,” Jones said. If carriers can maximize economies of scale, “it will keep them competitive. I think we see now where it’s getting very close to where some of the carriers may have to drop out.”
Jones added that he doesn’t expect carriers to pass along their per-slot savings voluntarily, but that this is understandable. “My job is to make sure that we try to get them to share those savings ... I hope I have enough leverage to at least beat our competition, and that’s what counts,” he said.
Pearce, Jones and other shippers acknowledged that increasingly large ships pose operational problems for ports and intermodal networks, and that supply chains will have to adjust to sending or receiving shipments in large blocks instead of a continous flow of smaller shipments.
“Some of the congestion we have faced over the last six to 12 months had jaded us,” Pearce said. “We think, ‘Oh, man, what’s going to happen to us now when we’re discharging 6,000 containers as opposed to 2,000 containers?’ So the concerns are there with the infrastructure, especially with the terminals.”
Pearce said Lumber Liquidators now typically has 50 containers on a vessel. She said she’s concerned that a less-continuous flow of larger blocks of cargo could lead to indigestion in the supply chain, especially if ports can’t deal with congestion.
“Two or three days of additional inventory is a lot of wood, and I don’t have space for it,” she said.
Jones said bigger ships and their larger, less-frequent deliveries could force companies to maintain higher inventories. “That’s a concern,” he said. “Working capital is a big deal for a large company like International Paper.”
Container and chassis management also will be a challenge. Companies such as International Paper will have to mesh continuous factory operations with what will amount to batched delivery by large ships.
“We definitely do not want to get into holding containers on our yards. That’s not good for our carriers,” he said. “That’s a concern we’ll have to work through.”
Doug Grennan, director of North America container export trade at The Scoular Co., which exports about 90,000 20-foot-equivalent units a year, said bigger ships will provide more vessel capacity for heavy exports.
Scoular’s grain and grain products typically weigh 25 to 26 tons per TEU. Carriers’ capacity for such shipments is limited by vessel stowage restrictions.
“What we like about the possibility of big boats is that it brings us more export capacity,” Grennan said. “The bigger the vessel, the more deadweight capacity, the more loaded grain boxes you can get on the vessel.”
Larger ships also allow containerized grain products to be shipped in larger quantities that allow more shipments to move in containers instead of via bulk carriers.
He said Scoular typically ships 35 to 50 containers at a time, and that Chinese export crushers don’t want to buy in such small volumes.
“One of the ways for us to grow our demand is to increase our booking size by putting 100 or 150 or 200 containers on one ship at one time,” Grennan said. “These bigger boats might allow us to do that.”