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The two biggest challenges in modern shipping

The two biggest challenges in modern shipping

Here’s what that means for global exporters.

If we’re talking about 20th and 21st-century shipping, there are two main challenges: ‘vulnerability' and ‘organisational control'. Allow me to elaborate.

The vulnerability problem

Since World War II, the global maritime network has gone through a structural change. We went from a dense network connecting multiple ports with multiple linkages across the world to a more centralised network around large hubs. Rotterdam and Singapore, for example, are prime hubs for exchanges between entire continents. Dubai, Busan, and Hong Kong are among the others.

Today, you’re forced to go through these major hubs to distribute goods. These hubs are located in specific areas, along the East-West trunk line, between major markets. For example, the Caribbean near the Panama Canal, between North and South America, and between the Atlantic and Pacific crossroads.

This is where vulnerability comes into play — you have a network for shipping goods with fewer alternatives to ship.

These vulnerabilities — the result of rapid technological change — are not compatible with a crisis like COVID. You need alternatives when the supply chain is disrupted. With so few alternatives, the bottlenecks and congestion become even more acute because most of the goods are transported on mega ships between the largest ports.

So if these ports are stuck with piling containers on the docks with queues of trucks waiting and large ships waiting ashore, then you can imagine how difficult it is for the supply chain to be agile, lean and flexible.

“The system works well in the context of uninterrupted growth, but when a small grain is thrown into the system it can make everything collapse quickly.”

It’s a trade-off between optimisation and vulnerability. When you develop a hub and spoke network, you bet on optimality — it will save time and money to distribute goods between small nodes and large nodes and you can create economies of scale. But you also make your network vulnerable because if the main node is congested or disrupted, then the whole system goes down.

Take the blockage of the Suez Canal — it had quite some impact, but it was only temporary and it recovered well. But what is more important is the fact that the system can be disrupted so easily and so quickly, by only one ship, leading to significant costs to the industry, the shippers, and the shipping lines.

During the Suez Crisis in the late 1960s, the Suez Canal was blocked for almost ten years. The industry had to find solutions to transport goods between the Middle East and Europe. This led to the emergence of the so-called supertanker. The problem was that only a few European ports could welcome these supertankers. Rotterdam, for example.

The Covid-19 crisis led to ships waiting near Los Angeles and Long Beach along the coast of the USA, unable to go anywhere else to deliver their goods. This is quite surprising — we are talking about the biggest economy in the world.

The USA has a huge coast with many port cities. San Francisco, Oakland, Seattle, Tacoma, and Portland (Oregon). But if you look closely, none of these ports can welcome these huge ships — except Los Angeles. You could send goods by rail to the US from Vancouver in Canada. But Vancouver doesn’t have the same capacities as Los Angeles. There’s the Panama Canal, which was enlarged in 2016 but still isn’t sufficiently large enough to welcome these mega-ships.

The problem of organisational control

The second major challenge is the geopolitical control of the global transportation system, where there is increasing monopolisation. On the one hand, you have global transport companies that are merging at a fast pace since the 1990s and control an increasingly bigger portion of global shipping — either individually or through alliances. This is what’s known as horizontal integration.

Fusions, mergers, and acquisitions in the sector make big companies even bigger. And also, in parallel, there’s what’s called vertical integration. You have shipping lines more and more involved in logistics, inland transport and ports, stevedoring, and cargo handling operations — a transport chain which is almost entirely under the control of single actors.

The main consequence of having a narrowing of ownership is the huge concentration of flows along what we call the ‘trunk lines', the east-west trunk lines — the main markets along the terrestrial routes between Europe, Asia and North America.

This is where companies have been investing since World War 2. The main industries are there, and the main consumer markets. This narrowing, this monopolisation, has reinforced this concentration of flows along trunk lines. It’s also led to the lowering of transport costs, with bigger ships and bigger capacities, and a more accessible cost for shippers. It makes the global transport system highly optimal and fluid, but more vulnerable.

On the other side, there are single state actors like China who are increasingly monopolising control over world trade, in particular, the trunk lines. The Piraeus port in Athens, Greece, was one of the first ports to be invested in by China. There’s the famous case of Colombo in Sri Lanka — the Chinese plan to build a brand new city there. The new Maritime Silk Road, under the One Belt, One Road initiative, comprises a series of new shipping services and terminal investments along the Europe-Asia route and across Africa.

China is doing things that Western countries are missing — there’s no clear Western goal or vision for the North Atlantic, or for the Atlantic in general, and no unity between the powers of the North and South, or Europe. Everything is left to private companies.

Western countries have in some way neglected the conceptualisation of a global transport system which would serve their interests. Such a vision existed in colonial times when the two interoceanic canals were dug. If disrupted today, they would cause the isolation of Europe, while other economies would still remain connected.

All of this has in some way made the world more integrated and fluid. But we should also consider the implications of such changes for the future. Who gets to decide who has access to these goods and who gets to benefit from these new circulations?

Silverbird is on a mission to liberate trade. Open an exporter’s account today at Silverbird.com and join hundreds of global entrepreneurs on their journey to borderless trade.

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