Marc Levinson

Month: October 2022

  • Locked In

    Standardizing the shipping container in the mid-1960s was a pivotal step in globalization. Up until that point, containers came in a multitude of designs, so one ship line’s containers might not fit aboard other carriers’ vessels. A crane equipped to lift one type of box from a wharf or a rail car might not be able to handle another. Only after years of arduous negotiations did the International Organization for Standardization (ISO) agree on standards for container size, structure, locking devices, and other features. Once the standards were set, container shipping boomed, helping transform the world economy.

    ISO designated the 40-foot box as the “standard” full-size shipping container in 1964. At the time, 40 feet was the maximum length allowed for truck trailers in most U.S. states. But over the years, state governments have gradually permitted longer loads, especially on Interstate Highways. A considerable share of U.S. domestic freight now moves in 53-foot containers. These boxes rarely cross the seas. Instead, in a little-known example of supply-chain inefficiency, warehouses near some U.S. ports specialize in unpacking 40-foot containers of imports and stuffing the cargo into 53-footers for land transport across the country. The freight in three 40-footers can fit into two 53-foot boxes, reducing trucking costs.

    The BNSF Railway has now gone a step farther, announcing that it will build a yard to transload freight between 40-foot containers and 53-foot containers. As planned, containers that now go by truck from Southern California docks to warehouses will move inland by rail instead, a shift that can only help air quality. Once a train of import containers arrives at the new yard, electric yard trucks will transport the containers to a warehouse, where the goods will be transferred into 53-foot containers, which will be moved back to the rail yard for shipment to points east. The process will be reversed for exports, with the contents of 53-foot containers being stuffed into 40-foot boxes to fit aboard container ships.

    I don’t doubt that BNSF, which says it will spend $1.5 billion on this project, has run the numbers carefully. But transferring freight between bigger and smaller containers seems to defeat the very purpose of containerization, to reduce the handling of goods.

    This is an example of what economists call “lock-in,” which occurs when a technology remains in use because the cost of change is high. In this case, 53-foot boxes generally aren’t allowed on roads outside North America, so the 40-foot container is still in demand. Most of the 5,500 or so container ships on the seas were designed for them, and carrying 53-footers as well hasn’t proven financially viable. While some 45-foot and 48-foot boxes are transported by sea, after nearly six decades of international container shipping, the 40-foot container remains the standard, and there is no practical way to make a change.

  • “Normal” Isn’t Coming Back

    “Supply chain ‘normal’ appears on the horizon,” Bloomberg’s Brendan Murray reports. Murray presents lots of evidence that fewer vessels are queuing at container ports, fewer sailings are being cancelled, and most measures of supply-chain stress are less alarming. But the discussion at the Global Maritime Forum’s annual summit, which convened last month in the Brooklyn Navy Yard, only reinforced my conviction that slow growth of international goods trade lies ahead. In that sense, “normal” isn’t coming back.

    The hot topic at the Brooklyn meeting was decarbonization. The International Maritime Organization, a United Nations agency that attempts to oversee the unruly business of international shipping, has decreed major reductions in greenhouse-gas emissions from ships by 2050. A revised strategy, likely with more ambitious goals, is due from the IMO next year. In addition, vessel owners, especially owners of container ships that carry consumer goods, are facing pressure from their customers to curb emissions more quickly.

    Reducing greenhouse-gas emissions means finding a substitute for the petroleum-based fuels that now power almost all ocean-going ships. At the moment, though, there is no consensus about the best alternative. Some shipowners are building ships that can burn ammonia. Others are embracing liquefied natural gas. A much-touted option is e-methanol, which combines hydrogen with carbon dioxide captured from industrial sources. A few hydrogen-powered ships are already at sea. Battery power may work for short sea crossings.

    These approaches have several problems in common. They are very expensive: by one estimate presented at the Global Maritime Forum, the cost of moving a ton of freight with low-emissions fuels will be five or six times as high as with petroleum-based fuels. Ships will sail very slowly to minimize consumption of precious fuel, increasing cargo owners’ inventory costs. Ports and terminals, facing the need to provide a variety of fuels at each berth, may face large investments in fueling infrastructure so long as ship owners can’t agree on which alternative fuel to use. Port users will have to foot the bill.

    All of this will affect choices about shipping goods across the oceans. Although the sky-high freight rates of the pandemic years are behind us, the long-run cost of decarbonizing shipping will reshape supply chains. The days when international shipping costs barely mattered in making sourcing decisions are over.