The Port of Tacoma will be getting $141 million worth of upgrades and equipment to accommodate giant container ships, according to a recent report in this newspaper, with the project — including new cranes and pier reconfiguration — to be ready by 2018.
By the time that investment is completed, we may have a better sense of whether shipping lines are still operating those gargantuan ships, and which shipping lines are still operating them.
The global maritime shipping industry is in dreadful shape. Nary a day goes by without headlines about plunging cargo volumes, canceled sailings, idled vessels and shipping companies losing money.
Here, for example, is British-based Drewry Maritime Equity Research, in a report issued this month, on the industry’s status: “Container shipping is staring at a terrible 2016 with a structural slowdown in global trade volumes, historical low freight rates and ever increasing capacity (which) could result in an industry losses of USD six billion.”
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The news is no less grim for one major player, A.P. Moller Maersk A/S. Here’s more from the Drewry report: “Spot rates are quoting virtually at a nadir and Drewry’s channel checks suggest that contract rates have been signed at significantly lower levels than last year, severely undermining any prospects for Maersk line to return to profitability anytime soon while also posing a threat of an impending dividend cut.”
Is this temporary? China could eventually right its economy, Europe could regain economic strength, world commodity prices could recover, the dollar’s value could fall more in line with other currencies. But none of those is likely to occur overnight. Here’s another cheery prediction from Drewry: “Drewry estimates that global freight rates will deteriorate further this year while at the same time carriers will no longer be able to reduce costs at the same pace, given that the main advantages of lower fuel prices have already been realized.”
Shipping companies are taking steps to preserve and protect what they can of their income statements and balance sheets should the unpleasantness endure, and analysts warn that it will. Drewry, again: “The industry could get very ugly by the second half of this year if current commercial trends continue. Drewry believes a trigger point will be reached when more radical action on the capacity front will have to take place.”
Those steps include moves such as mergers to cut costs and idling still more capacity. They also include some longer-term measures such as rethinking the trend toward ever-bigger container ships, like the 18,000-TEU behemoths the Port of Tacoma is preparing for. For comparison purposes, ships with 10,000-TEU, or 20-foot equivalent units, capacity has been the norm.
The theory behind the megaships is that, as yet another Drewry analysis suggests, economies of scale reduce costs and thus increase profitability. But those returns may be diminishing, particularly in the current global economic and trade environment.
“While bigger ships help carriers reduce voyage costs, these savings are increasingly offset by higher port and land-side costs, meaning that total system cost savings are small and declining,” Drewry says.
The report advises greater cooperation among the players in the global supply chain, including shipping lines, terminal operators and port authorities to tackle “the operational and cost effects at port facilities caused by the challenging load and discharge patterns of these larger ships” and find ways of making the use of giant ships pay off. Otherwise, it warns, significant consequences including capacity consolidation, on land and water, will be thrust upon the industry.
Avoiding that scenario was one of the rationalizations commissioners of the ports of Tacoma and Seattle gave for combining their seaport operations. Why have two separate port organizations adding to the glut of capacity, which is expensive to build, when we can have one that more judiciously allocates where we spend our capital dollars? Or so the thinking went, and there’s some truth to that. Tacoma/Seattle has to have some capacity for megavessels.
But the trends undercut, or at least neutralize, another argument for the alliance, which was the competition between the ports on rates charged to shipping lines. With the industry hemorrhaging billions of dollars, shipping lines are not in the mood to pay more. No deals to be had in Puget Sound? Oh well, it’s not like that’s the only option for getting into or out of the West Coast, or North America for that matter.
Thus hardly anyone in the global maritime-trade industry is in a good place at the moment, and the scenery isn’t likely to improve for the balance of the year, and perhaps well into 2017. Those new cranes capable of handling an 18,000-TEU ship are likely to be an impressive sight. So will the ships themselves, if any happen to show up to use them.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at firstname.lastname@example.org.