When the 400-metre long, 220,000-ton container ship Ever Given got stuck in the Suez Canal in March, shipping was thrust into the limelight. We don’t normally pay much attention to sea lanes but the Suez snarl, which lasted for six days, underscored how dependent we are on the maritime arteries of international trade. By blocking the busy shipping lane that connects Asia and Europe, the prone vessel halted the passage of almost $10 billion worth of seaborne traffic per day – around $400 million each hour.
At any given moment, tens of thousands of commercial vessels are plying the world’s oceans, the unsung heavy-lifters of the global economy. “We associate airports with air travel, which is all very glamorous and linked with holidays and so on, whilst shipping does the day-to-day grunt work of global trade,” says Tim Harcourt, a trade economist at the University of Technology, Sydney. “Shipping is like the hard-working midfielder and airlines are like the fancy full-forwards.”
Even before (and since) the Ever Given’s mishap, disruptions caused by the pandemic have meant international shipping is under pressure. The flurry of online purchases we make during lockdowns has triggered a surge in demand for the giant vessels that traverse the high seas. At the same time, the spread of coronavirus has played havoc with shipping schedules and port operations. Reserve Bank figures show the global price of transporting containers quadrupled in the year to June 2021.
Australian retailers have even warned Christmas shopping might be interrupted by the supply chain crunch as consumers face delays and price hikes for shipped goods. Many popular Christmas presents are imported from overseas – toys, electronics, leisure equipment and homewares. That means they come to us by sea. But right now, the global shipping system is caught in a perfect storm of pandemic-related events, from Delta outbreaks and port closures to freighter scarcity and a lingering boom in demand for goods transported by sea. In late August, hundreds of ships were reportedly stranded outside congested ports across the world, waiting to be unloaded.
The head of one of the world’s biggest shipping companies, Rolf Habben Jansen, chief executive of Hapag-Lloyd, has warned the bottlenecks will persist. “We currently expect the market situation only to ease in the first quarter of 2022 at the earliest,” he said earlier in August.
Even when global shipping is not grappling with these disruptions, seafarers face some age-old hazards. There were 195 incidents of piracy against ships worldwide in 2020, 20 per cent more than in 2019, and some crucial seaways are increasingly contested by regional and global powers.
So, how did we come to rely so heavily on maritime trade? How vulnerable are the sea routes that keep the global economy going? And how is global shipping changing?
Who invented container ships?
A simple idea revolutionised the shipping industry in the mid-1950s. Truck driver Malcolm McLean stacked 58 metal boxes on an ageing tanker ship going from Newark on the US east coast to Houston, Texas.
This concept sparked a flurry of innovation, including a standardised, truck-sized container called “twenty-foot equivalent units” or TEUs. Shiploads are measured in TEUs, but containers now come in several sizes: three metres and six, twelve and 13.7 (in feet, that’s 10, 20, 40 and 45). Given their size – designed to fit on trucks – many unused shipping containers have been recycled into small houses, granny flats and sheds.
Before McLean’s invention, most shipped items were packed in barrels, sacks, baskets, crates or pallets then loaded and unloaded separately, partly on the backs of wharfies. It was a slow, labour-intensive and backbreaking business. But the introduction of the shipping container brought sweeping changes to international trade by slashing transportation costs.
In his 2006 book The Box, economist Marc Levinson explains how the standard-size container allowed huge economies of scale because ships, port facilities, trucks and trains in every country could be purpose-built to take any container in the world. The lower cost of shipping meant more factories could be located a long distance from customers, paving the way for economies in Asia, especially China, to become global manufacturing hubs. The introduction of refrigerated containers allowed perishables such as fruit, vegetables, meat, dairy, flowers
and some pharmaceuticals to be transported to distant markets.
As a result, containerisation has been an important factor in the advance of globalisation. Cheaper, more efficient shipping has underpinned the development of sophisticated global supply chains and the “just-in-time” management strategies embraced by manufacturers, retailers and others. Rather than incur the costs of stockpiling goods in warehouses, companies rely on the global shipping industry to deliver what they need when they need it. This has given households access to a vast array of low-cost products – everything from power tools to iPhones and fresh fruit to plastic toys.
Around 90 per cent of the world’s traded goods are transported by sea on a variety of ships. Tankers carry liquid cargo, mostly oil, while dry bulk carriers move huge quantities of commodities such as grains, coal and ore. Much of those raw materials are taken to manufacturing regions where they are made into finished goods, which are themselves then moved back across the oceans in container ships or more specialised cargo vessels such as the “roll on roll off” transporters that carry vehicles. The UN’s Conference on Trade and Development (UNCTAD) says the total value of the world’s merchandise exports reached $US19 trillion in 2019.
Container ships are the heavy-lifters of the global economy.
A huge workforce keeps that trade moving. About 1.5 million seafarers are employed by the global shipping industry and each month about 150,000 crew members need to be changed over to, and from, the vessels they operate.
China is now at the centre of shipping commerce, especially container cargo. It hosts the world’s biggest container port, in Shanghai, which moved 42 million containers in 2018. By comparison, all of Australia’s container ports combined move around 8 million per year, mostly in Melbourne and Sydney.
The increasing scale of tankers carrying oil and gas from giant terminals and the bulk carriers transporting grains, coal, ore and cement has also helped to drive global trade growth. Tankers and bulk carriers are fundamental to the world’s supply of food and fuel. These giant vessels share the high seas with other commercial vessels – fishing boats, passenger liners, ferries and so on – and an array of more specialised vessels that provide specific maritime services such as drilling, research, salvage and dredging.
How does shipping affect our daily lives?
The effect of shipping-based innovations on the everyday lives of Australians has been profound. More than 42 per cent of goods in a Sydney household arrive in containers through Port Botany, according to research commissioned by NSW Ports. Each year the Port of Melbourne, which is the biggest container port in Australasia, handles nearly 3 million standard containers.
Container shipping is now fundamental to our society, says Marika Calfas, the CEO of NSW Ports. “It’s integral at a personal level, a family level and at a business and economic level,” she says.
And yet commercial shipping and ports receive surprisingly little public attention. Michael Bell, professor of Ports and Maritime Logistics at the University of Sydney, says that reflects positively on their efficiency. “From the point of view of the consumer, it works; the goods turn up and they are on the shop shelves,” he says.
Australia is especially dependent on international shipping. During the past three decades, our economy has become deeply integrated into global commerce, so much so that one in five of our workers is now involved in trade-related activities. We rank fifty-fifth in the world for population but a 2019 Department of Foreign Affairs and Trade report said Australia was the world’s twenty-third-largest exporter and twenty-first-largest importer (although some of that trade is in services rather than the goods transported by sea and air).
Shipping allows Australia to earn income from agricultural and mining commodities that are far too plentiful for us to consume ourselves. Australia exports about two-thirds of its agricultural produce and most of its iron ore and metallurgical coal production (used for steelmaking). Most of Australia’s merchandise exports leave on tankers and bulk carriers but when it comes to container shipping we import much more than we export. That means hundreds of thousands of empty containers are loaded onto ships each year and returned, mostly to Asian ports. “Essentially, our biggest container export is air,” says Calfas.
The system can be perplexing for outsiders. Many commercial ships are registered under a flag that does not match the nationality of the owner. For example, at the beginning of 2020, more than half of all ships owned by Japanese entities were registered in Panama; more than a fifth of the ships owned by Greek entities were registered in Liberia and another fifth in Marshall Islands. Bell says the main reason for this is that owners wish to avoid the stricter marine regulations imposed by their own countries including labour rules, pay rates and taxation. Nations such as Panama and Liberia also offer simple and inexpensive registrations. But Bell says the quality of construction and maintenance of commercial ships is safeguarded by the need for insurance and the threat of inspection when vessels are docked at many foreign ports.
How secure is global shipping?
The Suez Canal, a narrow sea-level waterway built in Egypt during the nineteenth century, is a shortcut between the Mediterranean Sea and the Indian Ocean that means vessels travelling between Europe and Asia don’t have to sail around Africa, saving weeks each journey. It is one of three strategically sensitive passages in the Middle East that carry a large volume of maritime traffic. The other two are the Strait of Hormuz, linking the Persian Gulf to the Gulf of Oman, and the Bab al-Mandab Strait, which separates Africa and the Middle East. All three are primary waterways for the transport of oil and natural gas.
The Panama Canal, opened in 1914, is a shortcut between the Atlantic and Pacific oceans. As with the Suez, opened in 1869, it has been upgraded in the past decade to allow the passage of larger vessels. After the Ever Given debacle, Egypt announced it would further widen and deepen the Suez.
Another key maritime choke point is the Malacca Strait, a sea channel between Malaysia and Indonesia, which is the quickest route between the Indian and Pacific Oceans. There is little margin for error in this congested shipping lane, which narrows to just 2.7 kilometres at one point. It is a natural bottleneck with potential for collisions, groundings and oil spills. If the Malacca Strait were blocked, almost half of the world’s shipping fleet would be required to reroute around the Indonesian archipelago, adding to transport costs.
Strategic competition and diplomatic tensions are a perennial menace to commercial shipping, especially near these strategic choke points. One hotspot is the South China Sea, where China’s growing military power and assertiveness has stoked international concern. Around one-third of global shipping travels through this sea, much of it via the Malacca Strait.
Choke points and hotspots
Piracy also poses a threat to commercial shipping in some regions. The industry is especially worried about deteriorating security in West Africa’s Gulf of Guinea, which accounts for around 90 per cent of the world’s maritime kidnappings. “Previously, many of these attacks had been principally motivated by the intention to steal cargo,” says a report by peak body the International Chamber of Shipping. “Increasingly, however, seafarers are now routinely being kidnapped and taken into Nigeria where they are then held for ransom in the most appalling and terrifying conditions. Most ship types have been targeted, including container ships and bulk carriers as well as tankers and offshore support vessels.” In the first quarter of 2021, 40 sailors were kidnapped globally, almost twice the number in the corresponding period the year before.
As with many industries, the coronavirus crisis has been hugely disruptive to seaborne trade. The seafarers who operate the global shipping industry have been especially hard hit. Widespread border restrictions have prevented many maritime workers from being repatriated during the pandemic and often stopped ship crews from being replaced. This has forced hundreds of thousands of seafarers to continue serving on their ships for months beyond their contracted tours of duty. The International Chamber of Shipping says many crews have been pushed to near breaking point due to fatigue and the anxiety of being unable to return home.
How is global shipping changing?
When you stand on a dock alongside a modern container ship its mammoth scale is striking. The distance from bow to stern of the world’s biggest container vessels is more than double the widest point of the MCG’s playing field. The economies of scale offered by even bigger vessels is appealing to shipping firms because the larger the boat, the lower the unit cost. Bigger vessels may also help shipping companies reduce their carbon footprints.
But Bell says further growth in ship sizes may be limited because it means more inventory must be stored at different stages of production in global supply chains and that costs money. “Around 400 metres seems to be the maximum practical length,” he says.
Port operators complain that bigger ships require additional onshore investments to unload, store and transport their cargo. Calfas says “bigger is not always better” when it comes to container ships because the land-side investments needed are likely to more than offset other savings. “It’s the shipping version of deploying an A380 to every airport,” she says. Most of the container ships that come to Australia are smaller than those operating at the world’s biggest ports; Calfas says the average carries around 6000 containers, less than one-third of the capacity of the Ever Given.
Regardless of how big commercial ships become, advances in automation and other new technologies will affect demand for seaborne trade. Bell says digitalisation and artificial intelligence will allow far more localised production in some industries which, in turn, will reduce the need to ship so many goods such long distances. “What automation does is make production more mobile and less dependent on large skilled workforces,” he says. “That means you can make things more easily closer to the point of consumption, and that’s not good for shipping. New technologies give us a flexibility that means we don’t have to source so many things from the other side of the world.”
A 2019 study by consultancy firm McKinsey found the intensity of goods trade is already declining in many global supply chains. It predicted advances in robotics, artificial intelligence and 3D printing would likely “reduce global goods trade by up to 10 per cent by 2030 as compared to the baseline”. These technologies may lead to more “nearshoring” – when businesses switch to suppliers in countries and regions close-by in preference to those further away – allowing tighter co-ordination of supply chains and lower shipping times and costs.
Worries about the security of far-flung supply chains, stoked by the pandemic, could also encourage firms to reduce their use of long-distance shipping. The prospect of greater geostrategic tensions and trade conflict could be a further incentive for firms to lessen their dependence on distant suppliers and to source more goods closer to home – or from nations and regions considered friendly and less vulnerable to political influence.
As with most industries, shipping is under pressure to help combat climate change. The oil burnt to move so many huge cargo vessels around the world is a major source of the carbon emissions that cause global warming. International shipping accounted for around 2.5 per cent of global CO2 emissions in 2019 – more than double what Australia produces.
The International Maritime Organisation, the UN body that regulates international shipping, has set a target to reduce the carbon intensity of shipping by 40 per cent compared with 2008 levels by 2030 and by 70 per cent by 2050. Bell says some major players in global shipping are moving ahead of the regulator by experimenting with cleaner fuels and exploring new low-emission engine technologies. “I’m quite optimistic about shipping making a transition to carbon neutrality,” he says.
While the industry might be trying to cut emissions, in one respect, at least, it might benefit from climate change. As the Arctic ice cap recedes, oceans once the domain of ice-breakers will host other types of ships. Waters in the region will remain navigable for much longer periods, creating potential new trade routes. Unfrozen, the North-West Passage, skirting Canada and Alaska, and the Northern Sea Route, above Russia and Scandinavia, could slash voyage times between Europe and key ports in Asia and North America.
An experimental trip in February 2021 saw a Russian tanker become the first commercial vessel to cross the Arctic so far into the northern winter. It provided a glimpse of the potential of Arctic sea routes as an alternative to the longer, traditional voyage between Asia and Northern Europe via the Indian Ocean and the Suez Canal.
But as nations jockey for influence over Arctic sea lanes, and for control of the vast natural resources below, greater geopolitical friction looms. There is also pressure to limit economic activity in the region in a bid to preserve its unique and sensitive environment. With climate change comes both concerns about more international disputes – and the promise of a new frontier for maritime trade.
Source: The Sydney Morning Herald