Boston's lonely quest to make US container shipping reflect value rather than scale
 It wasn't that long ago that New York's finger piers that ringed Manhattan were operational and that most cargo going to metropolitan London landed on the quays of ancient Docklands.
All that has long gone, having moved off to New Jersey across the Hudson in one case and 70 miles north east from London in the other, both faraway from the bright lights of big city congestion to where road and rail access were once again readily available.
If port congestion caused the world waterfront community to look elsewhere for salvation 50 years ago, it is again congestion that has reared up, prompting a new generation to yearn for a way to solve the problem for which they can blame no one but themselves.
Michael Vanderbeek, deputy director Port of Boston, now seeks to address this critical issue in a bid to find a niche for his own port. While conceding that size matters, he also insists that small can be beautiful too, even from a commercial point of view.
In container shipping's quest for economies of scale, he says. the industry has been largely successful. From 30-man ships carrying 500 TEU in 1967, we have 13-man ships carrying 20,000 TEU. This, of course has brought about the congestion that their forebearers managed to avoid by simply getting out of town, going to New Jersey and Felixstowe - and countless other out-of-the- way places in port cities worldwide.
Only now are we realising that economies of scale, once so ubiquitous and praiseworthy, are now coming to be appreciated as something less than a universal good. Especially, now that carriers are consolidating and collaborating in unprecedented ways in pursuit of greater economies of scale. Ports too are expanding and collaborating as never before in order to achieve even greater size.
Trouble is, rates are low, growth is weak and lots of capital has been spent ashore and afloat, which continues to induce a contining stampede towards bigger and bigger ships and shipping organisation in a single minded quest to crush unit costs. But how long can the industry stay afloat by focusing on the costs alone? Size matters, but it is no panacea, says Mr Vanderbeek. At some point ocean carriers and ports alike will need to differentiate themselves on a basis other than low rates.
Today, North American ports are marked by high volumes of foreign imports whose final destination is hundreds if not thousands of miles away. This is likely to become more pronounced with more mega ships combined with carrier consolidation expected to follow the current round of ocean carrier merger and acquisition activity in the course of re-arranging shipping alliances.
As a trend, it is not good for shippers, who rather than getting more options and flexibility, as advertised, are getting less on both counts. Which is quite apart from the fact that it only encourages more of what all wish to escape - congestion. Rather than distributing millions of containers across multiple gateways so as to minimise landside bottlenecks and mitigate risks associated with single-point failures, this unintended outcome funnels more cargo through fewer port. Congestion, equipment imbalances and widespread stressed resources result - not just for shippers, but for the entire supply chain and the general public.
So instead of eliminating cost as intended, these methors merely shifts it from waterside to landside, and adds congestion costs, too acerbating logistics, environmental problem and community tensions.
According to a Federal Maritime Commission (FMC) "the elimination of congestion is today's most critical and relevant trade-related issue". Given this, one cannot understand how having more mega ships crowding into fewer ports is going to help resolve "today's most critical and relevant trade-related issue".
Admittedly, there is no returning to the good old days. Big ships are here to stay. So too are the nation's big ports. This may well mean conceding a certain amount of local volume to niche ports within the region to focus on improving the quality of their core non-local intermodal business.
"The industry will be better served in the long-term if growth in volume and/or market share at a given port is dictated by targeted efforts to improve performance and deliver value rather than by short-term cost-cutting measures driven by the relentless pursuit of market share and perceived economies of scale," said Boston's Mr Vanderbeek.
Ports of all sizes are acutely aware of the near-term challenges that larger vessels represent and, large or small, all ports must continue to make the necessary capital investments, including both dredging and landside improvements, to meet those challenges.
But sacrificing service in pursuit of scale is a false choice and a race to the bottom, not a blueprint for future success, said Mr Vanderbeek. Cargo, like water, will always follow the path of least resistance. By focusing on service over scale, productivity over price and overall customer experience over bragging rights, niche ports eliminate many of the unintended negative consequences that economies of scale have forced upon larger ports.
The first 16 years of the 21st century have witnessed a clear shift toward commoditisation in the container shipping industry as the relentless pursuit of scale at all levels has steadily eroded nearly all distinguishing attributes among service providers.
To the extent that trends in other industries can be viewed as reliable proxies for the future of container shipping, the next 16 years can and should witness a slow but sure shift away from scale as an instrument of cost reduction and toward market and product customisation as instruments of competitive advantage.
"Niche ports will increasingly emerge as differentiators in this environment by offering both carriers and shippers the one thing they most want: value," said Mr Vanderbeek. |
