The rapid pace at which container vessels are growing is affecting the entire supply chain. While cargo owners have the ability to adjust their business processes to accommodate mega vessels, ports, which are fixed assets with limited resources, are not as nimble. Even for ports that will not see mega vessels calling at their terminals any time soon, the arrival of larger ships is creating a cascading effect. Ships being replaced by mega vessels on major trade lanes are being deployed in the smaller trade routes. Therefore, the strain of larger vessels has the potential to affect all ports, big and small.
Vessel sharing agreements
Shipping lines are investing in mega vessels in order to take advantage of economies of scale. Larger vessels allow the lines to reduce unit cost, or the cost per container. However, these economies of scale can only be maximised when vessels are at full capacity. This need to fill the extra capacity generated by bigger ships has led carriers to enter into vessel sharing agreements and join alliances with other carriers to improve the chances of filling the larger ships. While vessel sharing agreements are not new, the size, reach and market concentration of recent alliances are. The combination of bigger ships and vessel sharing agreements presents new challenges for port authorities. The concentration of alliances is providing carriers with leverage and options that ports do not have. Furthermore, ports across the US have excess capacity. Recognising this, carriers and their respective alliances are capitalising on the excess capacity by pitting ports against each other for more favorable rates and other financial incentives. In addition to financial incentives, carriers are requesting that ports make capital improvements that require significant financial investments and time. According to the American Association of Port Authorities (AAPA), US ports plan to spend US$46 billion to upgrade their facilities by 2017. Ports across the country are racing to obtain adequate water draft, berth size, crane height, terminal space and rail connections to handle the bigger ships. Few ports across the country can meet all of these requirements today, and even those that can cannot be guaranteed that the big ships will call at their port.
