The Containerised Trade Revolution

Arguably the greatest revolution in the field of maritime transportation since the advent of sea-going steamships in 1819 took place when the first containerised shipment left Port Newark in 1956. It is said to be the brainchild of an American trucking magnate Malcolm McLean, who came up with the idea of using uniform metal containers to provide seamless continuity to land and sea transportation. The concept passed the litmus test of cost-effectiveness, let alone convenience, when he discovered that the costs involved in the utilisation of his first prototype container ship was nearly 35 times less in comparison to loose cargo on a standard ship. There was thereafter no looking back for McLean, and as he moved on to bigger and even bigger container ships, his Company, Pan American, began dominating the market.

Since its adaptation to maritime freight, the container’s advantages were instantly obvious. By using standard sizes, generally one or two TEU( Twenty Foot Equivalent Units), all operations related to loading, storage, unloading, handling and transportation, both maritime as well as inland, became more convenient and theft-proof, and comparatively less costly, less time consuming and less labour intensive. Time spent in harbour for loading/unloading operations got reduced from a number of days to a matter of hours.

Because of the rapidity with which the concept took off, the initial container ships were understandably converted cargo vessels. The quick expansion of the container market justified the construction of customised container ships by the late 60s. Container ships built during the next two decades did not exceed a maximum carrying capacity of 4000 TEUs so as to keep within the limitations imposed by the Panama Canal. Once this imaginary barrier was crossed, the container carrying capacity kept increasing steadily till peaking at 14,500 TEU a decade or so later.

The race for increasingly large container ships kept pace with the double digit rise in container trade between 2000 and 2008, which rebounded again after a disastrous 2009 owing to overcapacity. It outstripped even the expanded capacity of the Panama Canal when, in 2006, Maersk announced the construction of a huge 15000 TEU ship, followed some five years later with an order for as many as twenty 18,000 TEU Triple E vessels. Five other shipping companies/container lines soon followed suit.

This year(2015) the sky’s the limit. Soon after the MSC Oscar became the first ship to set sail(in January) with a carrying capacity of 19,000 TEU, South Korean yards received an huge boost with an order of 21 mega container ships of 20,000 TEU capacity.

How do we explain this trend at a time of falling freight rates and market uncertainty? The answer is simple: the biggest container lines are gambling on the economy of scale factor. A ship carrying over 14,000 TEUs results in savings of between 10 to 15% per container, while lowering harmful gas emissions, the caveat being that utilisation should exceed 85% capacity while capping the maximum speed at 25 kts. Even if the trade growth is less than projected, these behemoths, because of their lesser operating cost, are likely to edge out the bit players along the long-haul routes.

Such huge ships are currently only being used in the European-Asian routes as none of the U.S. ports are capable of hosting them. The Panama Canal is again being widened and yet, after its expected completion next year, it still won’t be able to fit in ships of over 18,000 TEU carrying capacity. A new ambitious 15 year project may yet allow the Canal to handle the world’s biggest container ships.

While almost all emerging issues have been resolved through technical innovations, the only logistical challenge yet to be overcome has to do with empty containers, which account for as much as 20%of the global port handling volume and translates into operating losses.

The container craze buckled the trend of ships adjusting to the ports. The advent of container ships forced the ports to reinvent themselves to accommodate these huge ships by building specialised container terminals, install large cranes for handling their numerous containers and lay apart vast spaces to store them prior sending them on their way to their final destinations via rail and road terminals. Ports were afforded the choice to either conform to changing realities or get relegated to feeder routes. In the process, ports got transformed in terms of facilities from simply providing berthing to a complete range of maritime, industrial and inland services. Some high volume ports like Singapore and Shanghai handle over 40 million containers per year. It is thus vital for them to ensure speedy clearance at port terminals to prevent the containers from stacking up and to suitably enhance the capacity of inland transportation systems to handle such high throughputs.

Pakistan tentatively and rather belatedly ventured into the container terminal field with the commissioning of the Qasim International Container Terminal(QICT) in 1995. Its annual handling capacity has now exceeded a million TEUs after the construction of the second terminal by DP World. Karachi International Container Terminal(KICT), being currently managed by Hutchinson Port Holdings, commenced operations in 1998 and after completion of its third phase, is now spread over five West Wharf berths(26-30) and is capable of handling over 800,000 TEUs per year. The setting up of the Pakistan International Container Terminal(PICT), utilising three East Wharf berths(6-9) was given the go-ahead by KPT in 2002 and after completion of its fourth phase in 2010, is now capable of handling over 750,000 TEUs every year. All these container terminals have proved to be a big boon for Port Authorities, which apart from having the congestion at their ports eased, are earning substantial revenues as passive landlords.

Containerisation has proved to be the ideal foil to spur trade growth and even reshape it, just as global trade barriers came tumbling down through various trade agreements finalised over the past few decades. The supply chains which developed in parallel helped developing economies like China to post miraculous growths. At the end of the day, all it took to transform the dream of door-to-door seamless transportation into a reality through inter-modality was a simple standard size metal container.

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