Page last updated at 16:03 GMT, Sunday, 9 November 2008

Why container ships may downsize

By Marc Levinson
Author of The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger

The BBC-branded shipping contrainer
The Box has gone from whisky to clothing so far on its travels

The Box is a year-long project for BBC News to tell the story of international trade and globalisation by tracking a standard shipping container as it travels the world.

Having carried a load of fine Scotch whisky to Shanghai, the BBC's box is on its way to the US laden with tape measures made in China.

When it gets there, it's as likely as not to end up in a traffic jam.

The humble shipping container, as the BBC's Box project demonstrates so imaginatively, made the modern world economy possible.

If gangs of dockers were still stuffing loose cargo into the holds of ships, as they did as late as the 1970s, many of those whiskey bottles would have been broken or stolen somewhere between the bottling plant in Paisley and the bonded warehouse near Shanghai.

And those Chinese items would be impossibly expensive by the time they reach US store shelves.

More costly?

The container didn't cause globalisation, but globalisation could hardly have occurred without the decline in transport costs that containerisation made possible.

There are some big questions, though, about whether freight transport will continue to get cheaper in the years ahead.

Quite aside from the cost of oil, there are reasons to think that shipping goods around the world will start to become more costly, relative to the value of the goods themselves.

If this occurs, globalization may lose much of its allure.

Bigger still better?

The transport industry is suffering from too much of a good thing.

Cargo being unloaded in China
Unloading the biggest ships already can take quite some time

Much of the benefit of containerisation has come from what economists call "economies of scale".

What that means, in the case of freight, is that a big ship can carry each container at a much lower cost than a small ship. Until now, bigger has been better.

But bigger doesn't always mean cheaper.

The next generation of containerships, not yet under construction, may be able to carry 8,000 containers the size of the 40-foot BBC Box.

These ships will be enormously efficient at sea.

But they will be too large to call at many ports without projects to deepen harbours and lengthen piers, the costs of which will have to be borne by shippers.

Even at the few places where harbours are deep enough to welcome them, these giant new vessels will tax port capacity.

Today, a major port might work a big ship with five modern container cranes, each able to move 30 containers per hour.

Do the maths and you'll see that under the best conditions, these five cranes could unload only 3,600 boxes in a 24-hour period.

Clearing all 8,000 containers from the ship will take more than two 24-hour days under ideal conditions, and three or four days if allowance is made for crew changes and equipment breakdowns.

All the while, the vessel will be sitting at the dock, not earning revenue. Time is money, and for a ship-owner, time at the dock is money not earned.

Road congestion

And when the containers are finally off the ship, where will they go?

UK traffic jam
Ever more containers will only increase pressure on roads and rail systems

Simply moving one shipload out of the port will require 30 trains, each one-mile long, each hauling nothing but containers stacked two-high.

In the US and in much of Europe, railway systems will be unable to accommodate this added traffic.

Road transport might offer an alternative, were it not for the fact that road congestion is mounting almost everywhere.

The area around Los Angeles and Long Beach, the biggest US port complex, has some of the most delay-prone highways in the world.

Massive tailbacks are routine on the M1, through the English Midlands, and the E35, between Frankfurt and Switzerland.

Wherever these lorries travel, they are unlikely to proceed at full speed.

Delays in port handling and ground transport mean that international shipments are likely to face longer and more uncertain transit times - and the demand for more security inspections of cargo only increases the chance of delay.

Environmental costs

There are only two ways for companies to respond to these risks.

Ship being unloaded at Tianjin port in China
Mr Levinson says ever larger ships may not be economically viable

One is to keep more inventory in their warehouses, at considerable cost, so they can fill customers' orders even if imports fail to show up as scheduled.

The other alternative is for companies to shrink their supply chains, so that more products are made close to where they will be sold rather than halfway around the world.

In both North America and Europe, there is some evidence that this is starting to occur.

Environmental costs are likely to be a further burden on international transport.

Ports and transportation companies are just starting to face public pressure to reduce noise and air pollution and to curb emissions of greenhouse gases.

Addressing these problems will be expensive, and importers will have to pay most of the bill.

These factors are not likely to bring an end to the growth of international trade.

But as transport eats up a greater share of the total cost of a product, and as delivery becomes more uncertain, globalization will be a less attractive option for many companies.

Distance may start to matter much more than it does today.

This article was adapted from a recent essay in Foreign Affairs magazine. The full essay is available by clicking on the Foreign Affairs link on the right.

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