How Ocean Shipping Works (And Why It's Broken)
Ocean shipping is the backbone of global trade, allowing goods to be transported from one continent to another in a cost-effective and efficient manner. In recent years, the industry has witnessed significant changes, including the use of larger container ships, consolidation among shipping lines, and the implementation of slow steaming. However, the system is currently facing numerous challenges, leading to congestion and delays in the Asia to North America supply chain.
The Journey of a Cargo Ship
A typical journey of a cargo ship, such as the Maersk Essex, starts at a port in Los Angeles, California, and involves a round trip to Asia. The ship is loaded with thousands of containers, each carrying various goods, and sets sail towards its destination. It stops at ports along the way to unload and load containers, allowing for the transfer of goods between different countries.
Trends in the Shipping Industry
Over the years, there has been a trend towards larger container ships. The capacity of these ships has increased significantly, allowing them to carry more containers than ever before. This trend is driven by the desire to achieve economies of scale and cost advantages. The consolidation of shipping lines has also contributed to this trend, with the top 10 shipping lines now controlling 85 percent of the global market.
The Impact of Slow Steaming
One of the notable innovations in the shipping industry is slow steaming. In response to the financial crisis in 2008, shipping lines began operating ships at slower speeds to reduce fuel costs. Contrary to previous concerns, this approach has been proven to be financially advantageous, resulting in fuel savings of 10 to 25 percent on a given journey. Slow steaming has become a standard practice, allowing companies to reduce operating costs and remove capacity from the system when it's not needed.
The Challenges and Disruptions
Currently, the Asia to North America supply chain is facing significant challenges and disruptions. The increased demand for trans-pacific shipping, estimated to be up 25 percent compared to pre-pandemic levels, has overwhelmed the system. These disruptions have led to congestion in ports, delays in unloading containers, and a shortage of available containers for shipping goods back to Asia. Factors such as a lack of truck availability, restricted border crossings, and the need to send goods earlier to mitigate disruptions have exacerbated the situation.
The Port of Los Angeles and Onward Transportation
The Port of Los Angeles, together with the Port of Long Beach, handles approximately 40 percent of all container traffic coming into the United States. Once a cargo ship arrives at the port, containers are unloaded using massive cranes. The containers can then be transported onward using smaller ships, freight trains, or trucks. Trucks are the most common method of transportation, as they provide direct access to various destinations.
The Broken System
The Asia to North America supply chain slowdown is a result of the entire system being overwhelmed. The congestion in ports leads to delays in unloading and loading containers, causing a ripple effect throughout the system. The shortage of truck availability, restricted border crossings, and disruptions caused by the pandemic have further strained the industry. The result is a vicious web of chaos, where each factor contributes to the overall slowdown.
Ocean shipping, container ships, slow steaming, consolidation, port congestion, supply chain disruptions
- Why are container ships getting larger?
- How does slow steaming reduce fuel costs?
- What is causing the congestion in ports?
- Why is there a shortage of truck availability?
- How has the pandemic affected the shipping industry?