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Suez Canal Blockage: Why Are Ships So Big?
Ships Are Very LargeIn case you haven’t heard, there is a container ship wedged into the Suez Canal. Tugboats and bulldozers have been working since Monday to dig the 1,300-foot ship out of the canal walls, with early reports suggesting that it could take weeks to be dislodged.
The stoppage is costing $9.6 billion a day in shipping traffic, with container ships, oil tankers, and livestock carriers patiently awaiting transit through the canal. While it will likely be a one-off hit to shippers and their customers, it raises a question: Why are container ships so big? Couldn’t they be just a little smaller?
The container-shipping industry is a case study in economies of scale. High fixed costs to build, maintain, and fuel vessels — plus the costs of port leases and customer contracts — spur a relentless effort to size up on the part of shipping companies. In The Box, a history of container shipping, Marc Levinson describes the industry’s push to scale in the mid to late 20th century:
Bigger ships lowered the cost of carrying each container. Bigger ports with bigger cranes lowered the cost of handling each ship. Bigger containers — the 20-foot box, shippers’ favorite in the early 1970s, was yielding to the 40-footer — cut down on crane movements and reduced the time needed to turn a vessel around in port, making more efficient use of capital. A virtuous circle had developed: lower costs per container permitted lower rates, which drew more freight, which supported yet more investments in order to lower unit costs even more. If ever there was a business in which economies of scale mattered, container shipping was it.
The first container ships to cross the Atlantic were less than 500 feet long. By the early 1970s, fast vessels reached a length of 900 feet. In 1978, a single ship could transport 3,500 20-foot containers — more than the weekly cargo load that entered all U.S. ports a decade earlier. When ships couldn’t get larger, ports could. The amount of cargo moving through large American ports grew sevenfold in the 1970s, even as ports grew more competitive.
Because shippers enjoy little pricing power, they have to squeeze every penny they can out of every vessel. Shipping businesses are also highly sensitive to macroeconomic factors, profitable during booms but cash-cauldrons during busts. Only the most capital-efficient shippers can survive business cycles, and big boats are capital efficient. The result: 1,300-foot-long ships moving through 700-foot-wide canals.
Read More at https://www.nationalreview.com/2021/03/suez-canal-blockage-why-are-ships-so-big/