Overconsolidation in shipping Industry Part II?

By Thomas

The shipping industry II

In the last installment we discussed the coming consolidation of the shipping industry. But there is more to it than that shipping is going to change fundamentally and become a much more integrated part of the distribution channel.

Tankers have for many years been promised a glorious future – that hasn’t really appeared. One reason is the environmental restrictions imposed; but that could be considered rather a pretext or a politically correct attempt to polish the image of a visionary. Possibly those visions are just blind spots and waving flies.

There is a more practical explanation: A greater part of the ton-miles of oil transportation is done by pipelines. F.i. the major part of Russia’s oil export to Europe is through White Russia in pipeline – when it works which it often doesn’t (if Russia is a political disaster then don’t look at White Russia!). They are constructing a pipeline under the Baltic Sea with access to the German market.

Bulk carriers face another problem for raw materials such as iron ore. When the Chinese economy slows down it will hit ore disproportionally hard. A very large part of the world’s consumption of steel and copper is actually reused scrap. What do you do with worn out railroad tracks? Melt them down and make new railroad tracks – much cheaper in energy. China and India will not only stop import because their growth will not need the amounts of steel for construction; but they will become an easy accessible mine for scrap, which needs – say a tenth – of ship space compared to ore.

But the real revolution will be in container shipping.

Last time we saw that capacity is really a function of oil-prices, not building cost: When any numbers of nations are prepared to finance your new ships without interest then just order!

It is a proverb that time is money; but is it? Is not rather punctuality that is money? When interest rates are low who cares about the money tied up in goods in transit? Just-in-time delivery did not go out of fashion when interest rates dropped, as it should have if the justification was to reduce stock and inventory.

With slow steaming and even super slow steaming it seems like everybody can live with delivery schedules that are less than cannonball – if the price is right.

This also means that storage on board the ship might be quite a good thing. Today very few ships are wrecked. Why not have your container aboard a ship instead of sitting at place where pilfering is ripe – a port f.i.?

If you have a large ship with a good hull and efficient engines you don’t necessarily sail from A to B to A. You might sail from A to B to C to A. Perhaps unload some containers in B that have to go D, where the container is loaded onto a ship that sails B to D to E to B.

This is a network where the shortest path is found involving as few ships as possible. It has the advantage of keeping the container in your control and you don’t have to rely on other shipping lines. And it means you have to have control over all ports. Sailing is the smallest part of the action.

With big, fast ships you can service more ports with fewer ships or alternatively have higher frequency.

Mærsk experienced a hard time when they bought Red Green (I think it was) – their problem was, that they did not know where a container was at any given time. That is probably why Mærsk is not interested in acquisitions for the time being.

The alliances will not have an integrated system – and that is where the rub will be so far as I can see.

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