One could call Merk the original Big Boat Disrespecter. He is the Paris-based administrator for ports and shipping at the International Transport Forum of the Organization for Economic Co-operation and Development (OECD). Merk has led several research inquiries exposing the issues of megaships over the past decade. The top 10 ocean carriers control 80% of the industry. Nine of them are further organized into three alliances. In 2021, they earned $150 billion in profits, reports Freight Waves.
Through the 2010s, ocean carriers continued to build larger and larger ships
It was the choice of one carrier [Maersk] to use an even bigger class of ships and kind of as a weapon to get some of their competitors out of the market. It is about a slightly lower cost, but also that many competitors would not be able to follow that race to ever-bigger ships.
Of course it didn’t exactly work out as they planned. That is this whole story about alliances. Some of the carriers also decided to join alliances and actually order these new ships with their alliance partners.
But the end result is still more consolidation.
Do megaships become more economical if ports keep up in size and innovation?
They would be economical if ocean carriers needed to pay for the adjustments in ports and terminals. The fact is that they don’t, so that is why it has been economical so far.
The ports essentially take it for granted that they cannot recover all their additional investments that they have to make.
This is an effect that is relevant for all ports throughout the world.
Let’s say that the biggest ships were intended to go between Asia and northwest Europe. All the focus has been on these ports and how they adjusted dredging in Hamburg, Antwerp and the EU port extensions brought to them. But all ports are seeing the effects of bigger ships.
Shipping giants play global ports against each other
Most of the ports, they don’t have a lot of choice. They are becoming trapped in a competition with their competitor ports in the same region. Because the port that actually is going to do the necessary investments, they get promised, let’s say, a lot of the cargo.
A lot of ports these kinds of games where carriers threaten to go to another port, unless the port invests in, well, whatever you want. Most of the time that is of course bigger terminals or terminals adapted to bigger ships.
Why do countries provide all of these tax benefits when these ocean carriers are going to go to those places anyway?
There’s several players, but they work together in alliances. Especially if they operate in alliances, of course that represents a big chunk of the traffic of certain container ports. So that is one side.
The other side is that the ports want to continue to be a big port and want to continue to be in, let’s say, the Champion Leagues of the ports. They consider the other ports in the region to be competitor ports.
Sometimes a lot of competition between these ports, and sometimes the competition is so intense that some of the port authorities actually don’t see what they have in common. What they have in common is that no port really has an interest in having these very big chunks of cargo suddenly in their port that then they have to evacuate as quickly as possible.
The three big ocean alliances
There are some ports in some parts of the world that have actually merged, such as Seattle and Tacoma [Washington], and there are some Japanese ports that have merged. Recently in Belgium, you got Antwerp and Zeebrugge that have merged. There is a bit of movement there, but of course it is much less than what happens in ocean shipping.
What is generally underestimated is the extent to which ocean carriers incorporate not only in alliances, which is one thing, but also across alliances. This is what we found in a recent study, where we looked at all corporation agreements between the large carriers. That also includes vessel-sharing agreements or consortia, as they call it in Europe.
Around a quarter of these corporation agreements are between the top 10 carriers that are not in the same alliance. What we conclude from that is that it’s the alliances that are dominating shipping. But actually there are a lot of links, a lot of bridges among the carriers that are in these alliances.
It is clear that no port on its own is strong enough to really confront these carriers. So yes, you really need some sort of cooperation among ports.
Shipping giants may have been canceling sailings
Since we’ve seen this huge increase in freight rates, it is difficult to prove, of course, and this is also why many competition authorities are looking into that, but are also having difficulties finding, let’s say, a smoking gun.
But at the same time there are certain episodes in this whole story over the last two, three years where you could wonder if it isn’t really the cooperation among a lot of the carriers that has created the situation in which we are.
Victims of a global play
This whole story is a story of the bigger ports. There’s a whole range of secondary and tertiary ports, where actually the big carriers don’t really go, so they’re not really interested in those ports in a way. I think that is also a blessing. I think these are the ports that are more structured according to what the regional economy needs rather than being structured according to the wishes of a few global carriers.
In Europe we have the Port of Malaga in Spain or the Port of Taranto in Italy, which were in the global carrier networks or the plants until the moment that they decided to do something differently. Then, these ports had to adapt. And that of course is always difficult, because at some point you have to change into another sort of terminal, maybe more for general cargo. In many cases I don’t think there are a lot of ports that say, ‘Well we had enough of it. We’re going to do something else. We’re going to quit the big carrier container business.’
In most of the cases, they’re more victims of a global play. But this is completely different for ports that are operating in different environments, where it is more about regional cargo or about coastal shipping or about other types of cargo.
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Source: Freight Waves
