Boxed In
There may be few business decisions more treacherous than buying a new containership. These aren’t purchased off the shelf; a ship line must make educated guesses about size, engine characteristics, propellers, and dozens of other factors—and then hope that its choices prove wise over a useful life of three decades or more. Once constant since the start of container shipping 60 years ago is that ship lines that guess wrong about which vessels to buy end up dead.
One of the questions shipping executives now ask their crystal balls is, “How fast should our ships go?” This was not a great concern in 2008, when the high price of oil and a slump in the amount of cargo first led ship lines to slow down their vessels, as it was assumed that speeds would be raised once business returned to normal. Since then, though, most of the dozens of new containerships that have come on line have been built to steam at 18 or 19 knots (roughly 33-35 kilometers per hour) rather than 24. This slashes fuel consumption and reduces emissions. It also sops up the excess capacity that ship lines have created by ordering mammoth new vessels, since more ships are required to provide the same frequency of service on each route.
Ship lines may love slow steaming and ships that carry 10,000 containers apiece, but their customers don’t. Megaships can take longer to load and unload than smaller vessels, and slow steaming means that it takes three to five more days to move a container across the Pacific than it did a decade ago. All of this increases longer transit times, which means that shippers must hold on to their goods for a longer period before selling them, raising costs. For companies moving time-sensitive products, such as apparel, longer transit times also increase the risk of losing sales when a product becomes “hot” and consumers are hungry for more.
Slow steaming looked brilliant when oil sold for more than $100 per barrel, as it did in 2008 and again from 2010 to 2014. Megaships seemed attractive when the demand on key containership routes was growing six or seven percent per year. With oil below $40 and the world economy heading into what looks like a prolonged period of slow growth, neither circumstance applies today. Which leads to the question of whether ship lines will again pay the price for having guessed wrong.
Tags: containers, Manufacturing, retailing