Bigger Isn't Better As Mega-Ships Get Too Big and Too Risky

HughPickens.com writes: Alan Minter writes at Bloomberg that between 1955 and 1975, the average volume of a container ship doubled -- and then doubled again over each of the next two decades. The logic behind building such giants was once unimpeachable: Globalization seemed like an unstoppable force, and those who could exploit economies of scale could reap outsized profits. But it is looking more and more like the economies of scale for mega-ships are not worth the risk. The quarter-mile-long Benjamin Franklin recently became the largest cargo ship ever to dock at a U.S. port and five more mega-vessels are supposed to follow. But today's largest container vessels can cost $200 million and carry many thousands of containers -- potentially creating $1 billion in concentrated, floating risk that can only dock at a handful of the world's biggest ports. Mega-ships make prime targets for cyberattacks and terrorism, suffer from a dearth of qualified personnel to operate them, and are subject to huge insurance premiums. But the biggest costs associated with these floating behemoths are on land -- at the ports that are scrambling to accommodate them. New cranes, taller bridges, environmentally perilous dredging, and even wholesale reconfiguration of container yards are just some of the costly disruptions that might be needed to receive a Benjamin Franklin and service it efficiently. Under such circumstances, you'd think that ship owners would start to steer clear of big boats. But, fearful of falling behind the competition and hoping to put smaller operators out of business, they're actually doing the opposite. Global capacity will increase by 4.5 percent this year. "Sooner or later, even the biggest operators will have to accept that the era of super-sized shipping has begun to list," concludes Minter. "With global growth and trade still sluggish, and the benefits of sailing and docking big boats diminishing with each new generation, ship owners are belatedly realizing that bigger isn't better."

Comments

NEW IS BAD

[Hatechall]

So don't try to be bigger and better because you will be a target. Got it. Thanks, bullshit media!

Re:NEW IS BAD

[_Sharp'r_]

Two Statements:
Ship owners are realizing bigger ships aren't better than smaller ships.
Ship owners continue to prefer to buy bigger ships rather than smaller ships.

Assuming we are talking about the same "ship owners", one of these two statements isn't true. One of them is an empirical statement which demonstrates ship owner revealed actual preferences and the other one is a quote from the piece's author which seems inline with their own expressed opinion about bigger ship=bad. Which one do you think is more likely to be accurate?

See, it can be fun to analyze even idiotic media pieces...

The more you personally know about the details of a media story, usually the less accurate you'll think the story is. This also applies to media stories you don't know as much about, just many people don't realize it when it's not slapping them in the face.

Re:NEW IS BAD

[ArmoredDragon]

I think you misunderstand the motivation of today's newspapers. Basically, news content has such high supply and not enough demand that they're all doing whatever they can to get your attention and have you as a regular reader. There are two schools of thought for doing that:

1. Sensationalist titles (or their extreme, called clickbait)
2. Original content just for the sake of original content

This story is the later. Basically, the author of this piece needed to write about something -- anything -- and so he wrote it. It didn't necessarily have to make sense, or even be news; the only requirement is that it had to be something that nobody else has written about.

Re:NEW IS BAD

[jbengt]

I believe you have it backwards, all ships are boats, but not all boats are ships.
There are several versions of the difference, the main one being that a ship's captain gets annoyed if you refer to his vessel as a boat, but a boat's captain does not get annoyed if you refer to his vessel as a ship.
A Navy version is that a ship is a vessel large enough to carry boats. There are exceptions though, like ferries that carry lifeboats are still known as boats, as are submarines of any size.
A somewhat better version is that a ship has a permanent crew and commanding officer, while a boat is only crewed when it is active and has no real commanding officer. Again, there are exceptions, like commercial fishing boats.
It gets confusing, so I'm sticking to the original definition: a ship is a vessel with three or more main square-rigged masts.

Re:smells like BS

[JoeMerchant]

Airplanes peaked with the 747 - there are still some routes for jumbo jets, but most air travel is handled by much smaller - easier to route and fill jets.

Some of why the mega-ships are still profiting is externalization of their costs, port towns fall all over themselves to accommodate them picking up a big piece of the tab while operators reap the profits. Infrastructure even beyond the port needs to be expanded to handle the traffic, and cargo gets "single point routed" between the big ports like FedEx routes through Memphis.

Re:smells like BS

[godrik]

haven't RTFA (this is slashdot after all) but there are always diminishing returns. What do you gain by having a ship twice bigger?
-the price of the ship might not be twice more. but eventually, it will be
-the crew might not need to be twice as many, but on billion dollar worth of shipment, I guess the salary of the crew is not too significant.
-gain in fuel efficiency, but I guess we are running out of that.
-need to manage less ships simultaneously at HQ, but I am guessing that providing the scale of these ships, there are not that many of them for a company.

Now in term of cost.
-insurance is likely proportional to the value of the cargo and of the ship.
-loading/unloading the cargo, probably scales with the amount of cargo, one time overhead are probably already recouped at these sizes and they might become more cumbersome to load/unload.
-bigger ships probably mean fewer ships, so you get less point-to-point flexibility.
-fewer ships also means you start to have increased latency as you traded latency for bandwidth

Not sure which of these are real. But it looks like a fun problem to think about.

What did I miss ?

What a load of shit.

[Harlequin80]

For a start cargo insurance isn't carried by a single entity, it is naturally spread around all the people who are shipping items. So a larger ship does not have a material effect on insurance as you still just insure your containers. Also, with ocean shipping, time taken is not as important as with air travel, so true hub and spoke systems can work exceptionally well. You use massive ships to carry between hubs and smaller ships to run to smaller ports. If it adds a week to the shipping no one really cares.

As for crew. The Benjamin Franklin requires 24 crew. That is hardly hundreds of hands that is going to have a material impact on the cost of shipping. The MSC which is slightly larger has a max crew capacity of 35 but are operated standard by a crew of 13, again not breaking any economics.

Oh but lets throw in "cyber terror attack"!!!! That will get them. Oh piss off. The thing is slow and in the middle of nowhere most of the time. If you could some how take control of the throttle and the rudder, and somehow prevent the crew from cutting fuel lines, dumping fuel or fouling the props you MIGHT be able to crash it into a dock. Which while it would make a spectacular mess aint exactly the scariest thing I've ever heard of.

Re:Perhaps there's more to it?

[Impy the Impiuos Imp]

People are good at simulated annealing to kick out of local minima to search for deeper, greener pastures elsewhere.

When regulation doesn't hamper them, that is.

Ridiculous article

[argStyopa]

Really, the article simply illustrates the woefully ignorant state of reportage by "professional" news sources. No wonder the interwebs are kicking their ass.

The economies of scale are simply inarguable. The daily fuel consumption of a relatively ancient 8000-teu vessel is HIGHER than todays 18k+ teu ships like the Ben Franklin. IIRC it's about $25000/day.

And the fact that the US is scrambling to meet their infrastructure needs is more a comment on the decrepit state of US port and infrastructure that hasn't been materially upgraded since the 1970s. The rest of the world's major ports CAN handle them. (And handle them a shit-ton more efficiently thanks to US unions' lock on the shiphandling bottleneck.)

Ocean carrier profits are flat and worse, but that's nothing intrinsic to the size of the ships, there are just too many ships out there - and this was the result of ridiculous crude prices in the mid 2000s that prompted carriers all more or less simultaneously to make the long-term investment in new vessels. And considering a 10,000 teu ship would cost $150 million, they might as well build a 20,000 teu ship for $200, no?
The market currently reflects this gross surplus of capacity, that's all. As these carriers' new big ships all start to come online, what they'll do is retire the crappy, inefficient, polluting smaller older ships and replace say a 5 vessel string with 2-3 new ones. This means the same bandwidth, but less-frequent sailings.

Yes, the industry is due for a round of consolidation, but there's a certain point where the smaller carriers - the Yang Mings, the Zims, etc - aren't operating for profit anyway, they're being sustained by their state as a strategic/commercial resource. The largest carriers are (over the last 16 months) slaughtering each other on the TPEB and Asia/Europe routes, but that's each other and is likely to sort itself out long before pricing ultimately is transmitted through the value chain to the retail level.

It's too bad that Bloomberg couldn't have been bothered to find a professional reporter that understood the market.

Re:Fuel ?!?

[MachineShedFred]

Naval nuclear reactors are fairly serious business, to the point that when the US Navy started using them, Admiral Rickover would interview and give personal approval to every single officer serving on a ship with a reactor for 30 years. He wanted to make sure that every single person in charge had their head out of their ass and could manage any potential crisis that could come up. This is one of the factors that has led to the US Navy having exactly zero incidents of radioactive discharge from the over 200 reactors they've operated over history.

There is just no way you'd get that safety record from any operation that couldn't exercise that kind of control.