Tag Archives: logistics

Thin Ice

The news that Maersk, the container shipping giant, is sailing a containership from Vladivostok to St. Petersburg along the northern coast of Russia has drawn new attention to the consequences of climate change in the Arctic. While the warming of northern climes is sadly real, it is unlikely to bring about a major change in container shipping.

For ship owners and their customers, the attractions of the Northern Sea route are obvious. By sailing north rather than south from Shanghai, Busan, or Yokohama, a ship bound for Europe can shave several thousand kilometers off the trip, saving a couple weeks of travel time, a great deal of fuel, and the need to pay a steep toll to pass through the Suez Canal. A small number of commercial ships have traveled this route over the past couple years, carrying commodities, heavy equipment, and other cargoes. Some ports in northern Europe have begun to dream of becoming centers for exporting to Asia.

The Northern Sea route may well develop into a useful artery for bulk ships and other vessels on one-off voyages, but it seems quite unlikely to become a highway for containerships. First and foremost, ship lines employ their containerships in what is called “liner service,” meaning that they offer scheduled port calls at regular intervals. Between Asia and Europe, a carrier might create a “string,” a route calling at eight or ten ports from, say, Busan to Antwerp and back again, with enough identical vessels assigned to the string that it can guarantee an Antwerp-bound ship calling at Dubai every Tuesday and a Busan-bound ship dropping by Algeciras on Thursdays. The Northern Sea route is poorly suited to this sort of arrangement because, for the foreseeable future, it is likely to be navigable only a few months each year. If a ship line serves the route between June and September, what will it do with those ships the rest of the year? This is no small question: vessels are the most expensive part of running a container shipping operation, and ship lines that can’t keep their vessels operating near capacity tend not to survive.

A second challenge to the success of the Northern Sea route is that its most protected, least ice-prone areas, close to the Russian coast, have shallow water. This means that shipping companies would have to use vessels that are about a fifth the size of the biggest containerships in use between Europe and Asia today. The cost of providing a “slot” for a single container is much higher aboard a small ship than aboard a big one, so ship lines won’t be eager to employ such small vessels on lengthy routes. They could use larger ships by sailing farther from the coast, but that route is blocked by ice for a greater portion of the year and is more likely to require the use of icebreakers.

A third challenge is that there are no great population centers en route. Ship lines select the ports in each string carefully, estimating the average number of containers they will take on here and put off there, in an effort to keep their vessels as full as possible. There may not be enough cargo from Antwerp to Busan to justify running a ship that makes no stops in between.

As a recent study by economists at the Copenhagen Business School points out, my hypothetical trip between Busan and Antwerp covers 7,248 nautical miles via the Northern Sea route, 33 percent less than a voyage between the same points through the Suez Canal. In theory, there is money to be saved, even after extra costs for having icebreaker and emergency equipment on standby. But given the practicalities of container shipping, it’s going to be difficult for the Northern Sea route to live up to the headlines.

Who Owns the Curb?

How we define a problem often affects how we think about it. Consider the question of how we deal with the demand for curb space in our urban areas. If one were to approach this question as an engineer, one might look for ways to redesign our streetscape and reallocate the curb to certain users. If one were to approach this question as an economist, however, one might ask whether there’s a pricing problem.

As discussed earlier this month at the annual meeting of the Transportation Research Board (TRB), a government-sponsored research organization, this is an engineering problem. The assertion is that new ways of doing business have left us with too many vehicles at the curb. The growth of online shopping means more trucks making deliveries, and the growth of ride-sharing services has brought Uber and Lyft drivers waiting to pick up customers. Therefore, the logic goes, we need to provide more unloading zones for trucks and more pick-up locations for ridesharing vehicles. The presentations at TRB suggested that other uses, such as bus lanes, bike lanes, and parking of passenger vehicles, may have to give way.

The underlying assumption, you may have noticed, is that because consumers want online shopping and ridesharing, our streets should accommodate these uses. But there’s another way to look at the problem. Curb space is obviously of great value in some urban areas. That value belongs to local taxpayers. Every time a UPS truck parks at the curb to provide “free delivery” from Amazon, those local taxpayers are subsidizing Amazon customers unless UPS is paying the full market value of that parking space. Every time an Uber driver idles at the curb in Midtown Manhattan, she is occupying valuable real estate without paying for the privilege, and that subsidy is reflected in the artificially low cost of the ride.

Can the demand for curb space be met with economic measures rather than engineering? There is enormous pressure not to find out; in 2014, when Washington, DC, imposed a $323 annual fee for a decal that permits a truck to park in a loading zone, the trucking industry howled–even though that fee, about 88 cents per day, is far less than automobile drivers would gladly pay for a space one-third that size in many parts of the city. But perhaps if trucks and ridesharing vehicles paid the full value of the public assets they use, consumers would make less use of their services and businesses would save money by accepting deliveries at times when the value of curb space is low. Such changes could help relieve traffic congestion without remaking urban streets. There’s something to be said for paying full freight.