The unsustainable growth of the container ship industry
prospect.org
prospect.org
This is such a common pattern with optimization. Something starts small-ish, but gets optimized and optimized to the point that newcomers aren’t viable and everything gets locked in. It happens all over the economy, and the unprecedented scale of everything only makes the effect stronger. What’s the way out?
Just because someone can’t qualify for a mortgage doesn’t mean they can’t raise funds for a business.
I have no problem personally getting a mortgage, but even with a fantastic business plan I wouldn't give myself $10M for a shipping startup.
Am I totally out of touch?
>What’s the way out?
Until something that somehow compete with it from an adjacent industry. Otherwise they keep working until they are no longer needed. DRAM and NAND are industries that are like that. Or any industry that requires huge capital investment and it is somehow a commodity.
Long term I definitely would not be surprised if some of the bigger shipping players recognize the need to diversify and invest in operations facilities across more ports. But that takes time and money.
profit, and continuity of control authority
Some environmental coverage likes to omit this level of detail and it makes them sound extra extra horrendous.
One question I've been thinking about is whether the ocean freight companies will respond by increasing supply of ships. These ocean shipping companies didn't actually make a lot of money prior to the pandemic: back when China-USWest prices were under $3k a container, their margins were actually kind of thin.
So if we've had all this consolidation, and there are now three alliances that handle most of the freight, what is the incentive to increase supply? Just a 30% increase in ship capacity would likely crater profits.
Is the industry going to respond with building more ships, or, like OPEC, will they be able to coordinate to constrain supply so that long-term rates settle down in the $6-8k range versus the <$3k that existed previously?
If they are able to operate as a cartel, that will have major, long-term consequences for the dynamics of geographic manufacturing and supply chains. If they can't, then the pandemic will be a multi-year blip and we'll go back to hallowing out manufacturing and sending it to Asia.
It's really difficult for the industry to target the right spot of the supply/demand curve. A new-build project takes several years they need to commit in advance to the shipyards how many vessels will be built as part of a new class. Meanwhile, many other companies are simultaneously building vessels. And it's impossible to predict events like the port congestion in LA that drastically reduced supply for a period of time. And it's difficult to predict macroeconomic changes in demand. And a vessel might cost a hundred million dollars, so the operator isn't going to let it sit around and do nothing - they're going to put it to work and make as much money as they can.
It's a lot like the airline industry. Once that vessel is built, the cost of each incremental container is almost nothing.
1. Larger ships are more efficient due to physics. There isn’t some conspiracy. [1]
2. Just a few years ago the shipping industry was struggling so much that there were calls to scrap ships. [2] The article implies that there’s some oligopoly with opulent profits, which is wrong.
[1] Large cargo ships actually broke some von karman efficiency records.
[2] https://www.economist.com/business/2016/09/10/profits-overbo...
I'm sure the people knowledgable of physical shipping containers and infrastructure really weren't that concerned or perhaps even aware how overloaded the term is in tech, nor did they know they'd land on the front page of a highly trafficked tech site. I don't know the policy on editorialized headlines here but I know people seem to get up in arms about it, which I understand, but here's a case where a nice insert makes sense.
Faaaantastic.
Of course the entire "make 5000 miles away, ship it over the pacific" was enabled by the lack of a proper carbon tax.
If monopolies perform the same "service" then more power to them.
I think this pretty much sums it up:
>Shippers earned $25 billion in 2020; research consultant Drewry predicted $300 billion for 2021 and 2022.[...] A study by the National Oceanic and Atmospheric Administration found that pollution from cargo ships has led to 60,000 deaths per year and costs up to $330 billion in annual health costs from lung and heart diseases.
Even after the preposterous profit-taking from the recent supply chain clusterfuck, their profits would still be zeroed out by accounting for just some of the externalities.
You could potentially argue that a carbon tax's impact on transportation generally would increase local manufacturing, but I kind of doubt it- it would advantage those manufacturers best concentration of raw materials and suppliers as those get transported multiple times in the production cycle, whereas the finished production only moves once.
If it is properly regulated / priced to account for externalities (I would like some conservative regulation to make up for the unaccountable/unknown externalities, perhaps protectionism could function in that manner), then it would likely properly account for environmental concerns.
My top comment of course didn't even deal with the "environmental arbitrage" that international shipping represents. You make stuff where there isn't as much regulation/price accounting for externalities, THEN you ship it 5000 miles.
It used to be this amounted to simply getting to offload localized pollution on the third world, and the first world gets the benefits. You know like this:
https://www.bbc.com/future/article/20150402-the-worst-place-...
But carbon emitted in China impacts us here. And that is the existential threat.
If you want a good, modern "Web3" example of this, hm, why is Mongolia a new bitcoin mining hub?
This is just demonstrably false. For a typical household product, more carbon is emitted trucking it from the port to the store than is emitted shipping it across the ocean. Cargo ships are extremely energy efficient. And of course for a great many products the raw materials are not actually produced locally, so if you shift manufacturing back home you now have to ship the raw materials instead.
A "proper carbon tax" would increase oversea production since economies of scale are real and huge.
Also, the part about the raw materials not being produced locally, this is true abroad too.
But it's kind of funny, you can see a few comments at the bottom from people who didn't actually click the article, and therefore thought similarly to us.
There's a documentary (Long Way Round) about Ewen McGregor riding a motorcycle from London to NYC by going around the world across Eurasia. They were essentially ferried by a giant off-road truck through rural Russia and even then they had to practically dig a new path for truck to pass in some spots.
That was in 2004, but I doubt the road of bones has gotten any better since then...
Then there’s that thing of: should we? Absolutely, yes. Russia and the USA would destroy the Earth if tensions move to war. The US corporate press loves to say that Russians are massing troops on their border, but that’s within their own territory. Meanwhile, the USA has massed troops all over the globe with bases in nearly every country. The antagonisms need to stop. Peace needs to reign. The alternative is the death of the Earth.
A train connecting Asia and North America might be exactly the kind of thing to bring this peace to the table. Politicians respond to lobbying. Cargo freight is big business. If enough money lined their pockets…