The Cost of Slow
A few days ago, I chatted with a shipping executive who made a bold prediction. The future of ocean shipping, he told me, is slow: the maritime industry faces great pressure to reduce its greenhouse gas emissions, he said, and steaming at lower speeds is the only way to do it. If my friend is right, he has identified an additional drag that will depress the growth of goods trade in the years ahead.
After ocean carriers first tried out “slow steaming” around 2007, container ships required three or four additional days to cross the Pacific and as much as an extra week to steam between Asia and Northern Europe — long before pandemic-induced backups at major ports. Steaming slower still will make it even less attractive to send goods pegged to fashions and fads long distances by water. Manufacturers and retailers may choose instead to relocate time-sensitive parts of their supply chains closer to their customers, even if that means higher factory production costs.
Slower steaming will influence globalization in less visible ways as well. As container ships travel more slowly, each ship will complete fewer round trips each year. That will effectively reduce the shipping industry’s capacity. At the same time, each voyage will entail more days of crew wages and mortgage payments than a similar trip today. This combination of factors means container freight rates are likely to remain higher than they might otherwise be. Containers themselves will have to be leased for a longer period in order to complete a shipment across the oceans, adding to the freight bill.
And then there is the matter of inventory costs. In recent years, with interest rates near zero, the shippers who own the goods aboard those vessels queuing for a berth at major ports haven’t faced much of a financial penalty due to longer transit times. But interest rates aren’t zero any more, and the cost of owning goods during longer trips across the seas is no longer negligible.
As I wrote in Outside the Box, trade in manufactured goods is likely to grow more slowly than the world economy in the years ahead. While container shipping rates seem to be descending from their pandemic peaks, slower steaming means that the days when transport costs were an afterthought may not return soon. Companies will have to take this into account as they decide what to make where.