The New Frontiers of Shipping

Commercial shipping is finally getting the infrastructure upgrade that has been long overdue. With updates to major waterways – like the expansion of both the Panama and Suez Canals – along with a container fleet that is rapidly increasing in capacity, the future looks to be highly competitive on every front.

That competition means there is likely to be some upheaval in the natural order, as innovation and commerce push boundaries. The question of where shipping is headed in the next several decades is very real these days. At the moment, all trends point toward a philosophy of capitalizing on scale. Shippers, ideally, will ship in as much bulk as possible – and they’re building bigger ships to accommodate this taste.

This is causing a kind of frantic scramble among ports and canals, which need significant upgrades in order to accommodate these growing, floating behemoths.

It’s these ships – along with climate change, transport costs and several other variables – that will affect global shipping routes and could alter the course of commercial shipping in ways that few events in history have.

In this article, I intend to explore this question and look at how these variables could lead to a much different landscape than the one we’ve come to know.

History redrawn

In the course of researching several articles on the Panama and Suez Canals, I found quite a bit of information that made me stop and think about where shipping might be in the next thirty years. We live in a time of rapid development, and in many ways technology has made us indifferent to change.

The shipping industry has changed drastically in the past century. Beginning in the 1950s, the containerization of goods started to become common practice. This simple concept of bulk shipping reduced transportation costs significantly, facilitating the global marketplace that defines today’s globalized economy.

As a result, the biggest ships today have a carrying capacity nearly twenty times that of pre-World War II freighters.

However, one thing that has remained fairly constant for nearly a century is the primacy of the Suez and Panama Canals which has been largely unchallenged.

After all, the Panama Canal shortens the trip from the Pacific to the U.S. East Coast by nearly 13,000km (around 8,000 miles). And the Suez Canal does the same between Asia and Europe by slicing around 7,000km (4,300 miles) from the journey.

Today, around five percent of the world’s traded goods pass through the Panama Canal. Another eight percent pass through the Suez Canal, and a whopping 25 percent pass through the Strait of Malacca.

At least partially because of this, both the Suez and the Panama Canals are in the midst of major expansion projects to be able to up their throughput, so these statistics could nearly double in the coming years.

However, it is far from clear whether these two clogged arteries of global transport will retain such significance in the coming decades.

As mentioned previously, the Panama Canal’s expansion will allow for much bigger ships. However, it still has its limitations and shipping companies are already building ships that are far too large for the canal.

Panama Canal Authority Administrator Jorge Quijano has been quoted as saying that the canal will need to be expanded again in another 25 years in order to accommodate the larger ships.

Similarly, there are ships that are too large to make it through the Suez Canal.

It is also safe to say that tolls and fees for these two waterways will increase as officials plan for possible future expansions. And with alternative routes opening up, the increased tolls and fees may be enough to push companies toward these new frontiers.

Bulk is king

These days, more than 90 percent of world trade in non-bulk cargo is carried on container ships.

That system has allowed for an unrivaled exchange between Asia and the United States. In fact, according to WISERTrade, waterborne trade with the U.S. is dominated by three Asian countries: China, Japan and South Korea. These three countries alone account for nearly one-third of all waterborne imports to the United States.

And while there are many factors which affect the savings realized by commercial shipping – including vessel operation patters, canal tolls, and port and terminal fees – there remains one constant, according to a study published by the U.S. Department of Transportation’s Maritime Administration. “Per unit cargo costs for shipping generally decrease as the size of a vessel increases,” the study found.

It’s very simple: The bigger the ship, the bigger the savings.

This simple formula has led shipping companies to invest heavily in larger ships.

“Based on current orders for new ships,” says the Maritime Administration’s study, “the worldwide fleet of container ships is projected to grow in capacity by 30 percent from the end of 2011 to the end of 2015, not counting any scrapping of older ships.”

In just four years, the carrying capacity of ships is threfore expected to jump by nearly one third.

According to the study, half of that 30 percent will come in the form of Triple E-class ships (the largest class), which means that 50 percent of the world’s impending fleet will be unable to transit the Panama Canal’s existing locks.

Panama’s expanded locks will allow for Triple E-Class ships up to 13,000 TEUs (twenty-foot equivalent units) of carrying capacity.

But as a sign of what’s to come, Maersk Line has ordered a fleet of twenty Triple E-Class ships with capacity of 18,000-TEUs.

“The growth in the number of new ships of 10,000 TEUs and greater is bound to continue beyond 2015,” according to the study, “as Maersk’s global competitors will order larger Post-Panamax and Suezmax ships to maintain unit-cost parity.”

 

“The composition of the global container ship fleet is changing rapidly, with an emphasis on larger, more fuel-efficient vessels,” the study says.

So far, global carriers have become as big as the available infrastructure has allowed. They built Panamax and Suexmax – “max” being the operative word – and the ports have been forced to keep up.

A new larger channel would surely prompt more of the same.

A new route?

All this talk of a new route is partially speculative. After all, the Northern Sea Route, which traverses the Arctic Sea to the north of Russia, has historically been ice-free for only two months every year.

However, as The Guardian noted in a 2014 article, that route is expected to open up for longer periods over the next 30 years as a result of climate change. The summer ice has declined by nearly 50 percent over the past 40 years, and Russia has said it expects the route to be almost entirely ice-free by 2050.

While only 71 large ships traversed the Northern Sea Route in 2013 (and this with the assistance of Russian ice-breakers), Russia expects a 30-fold increase by 2050, The Guardian said.

While this may be depressing news for environmentalists, it’s impossible to ignore the implications of an ice-free route.

The Northern Sea Route connects the Atlantic and Pacific Oceans, reducing travel time to Asia by 40 percent.

For anyone who doubts the seriousness of this, The Guardian notes that 11 countries have already appointed “Arctic ambassadors” who are tasked with promoting and defending national interests along the route.

Additionally, the Maritime Administration’s study sited the Northern Sea Route as a possible alternative to the Panama Canal.

“If this ‘northern passage’ were ice-free and safe to navigate by conventional container ships on a year-round basis,” the study says, “it would seem that shipping lines could operate a Far East-U.S. East Coast vessel string with one fewer ship by using the Arctic Ocean route.”

The cost- and time-savings might only be significant as far south as New York and New Jersey, which would save carriers four days, the study found. Although it notes: “There would be some cost savings, however, from reduced fuel consumption and avoiding Panama Canal tolls.”

Similarly the route might reduce transit times and costs to Europe from some of Asia’s more northern ports, meaning the Suez Canal could also find itself on the losing side of climate change.

Balancing act

Shipping companies like the Panama Canal because it provides access to five markets – Central America, South America, the Caribbean, the U.S. Gulf Coast and the U.S. East Coast – all on the same vessel string.

Conversely, the Northern Sea Route really only favours Canada and the U.S. East Coast.

As for the Panama and Suez Canals, there’s a possibility that the Panama Canal’s expansion could attract some of the Suez’s traffic. However, as a general rule, goods bound for the U.S. East Coast from China, Korea and Japan head across the Pacific and through the Panama Canal. Goods bound for the U.S. East Coast from India and Bangladesh typically go via the Suez Canal.

In between, Southeast Asia is a mixed bag, as shipping from Thailand, Singapore, Vietnam and Indonesia can go either way. “However, once the Panama Canal is expanded, this pendulum pattern will probably be used less,” according to the Maritime Administration’s study.

The Suez does offer the advantages of trans-shipment hubs in Sri Lanka, Djibouti, Oman, Egypt and Malta. At the same time, “The greater number of trade lanes that can be served by vessel deployments operating on the Suez Canal route will likely become more important as container ship sizes grow beyond the 13,000 TEU limit of the expanded Panama Canal,” the study predicts.

Exactly how all of this will play out is unknown, and opinion varies according to affilitation and potential gains. Panamanians are bullish on their canal’s expansion, as are Egyptians, while the populations of Siberia, Murmansk and Lapland are optimistic about the Northern Sea Route.

This much is certain: The future belongs to the global carriers. They hold all the cards and, as more channels become available, they will have more choice and the power to negotiate lower toll prices by threatening to use other routes.

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*Photo credits: U.S. Department of Transportation; Panama Canal Authority; Northern Sea Icebreaker Photo courtesy of Wikimedia Commons; Maersk Triple E Class courtesy of Wikimedia Commons.

Related Articles:
Panama Digs Deep: The troubled progress of the canal expansion
The New Suez Canal: Racing against time
The Suez Canal and the Med: Environmental concerns over expansion
Arctic R&D in Newfoundland