Watch Now

FreightWaves Flashback: Study shows Pacific container trade slowing down

1988: Trans-Pacific market trends, transportation issues and carrier-shipper implications are aired at meeting sponsored by the National Research Council’s Transportation Research Board

Image: Jim Allen (FreightWaves)

FreightWaves Classics articles look at various aspects of the transportation industry’s history. If there are topics that you think would be of interest, please send them to [email protected]

The many industries that make up the world of freight have undergone tremendous change over the past several decades. Each week, FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.

The following is an excerpt from the February 1988 edition of American Shipper (Page 79).

The U.S.-Far East container trade will undergo a significant drop in growth over the next few years, according to a study recently completed by the research firm of Temple, Barker & Sloane Inc.

Imports coming into the U.S. from the Far East are no longer growing at an average 19% rate as they did between 1982 and 1986. Rather, between now and 1991, they are expected to grow only at a rate of between 5 and 6% per year. Exports from the U.S. to the Far East are projected to grow 9% yearly up to 1991, as opposed to the 8% growth experienced between 1982 and 1986.

However, the above-reported growth rates do not take into account the possibility of a business recession in 1988 or 1989, according to TBS principal John G. Reeve. If a serious recession occurs, Reeve predicted that the already moderate growth projections would have to be trimmed by 2 or 3%.

Overall, U.S. container imports will continue to be dominated by freight coming from the Pacific Basin, according to the TBS study. These are projected to grow from 57% in 1986 to 64% of the overall U.S. container import picture by the year 1991. Western Europe will account for 24% of container imports, while Latin America will account for 9%, according to Reeve. This would mean a 4% drop and a 2% drop from Western European and Latin American markets, respectively.

More consolidation predicted

Over the next five years, pressures for business consolidations will continue among vessel operators, as will the trend toward building larger vessels, instituting multiple services and intermodal networks, which will bring about the already noticeable trend in the development of the “total transportation concept.”

In the trans-Pacific, the growth in the average size of container ships was documented by TBS at an 83% increase in size between the years 1982 and 1987.

For all carriers in the trade, the average container vessel jumped from a 1,059 twenty-foot equivalent unit (TEU) capacity to a capacity of 1,940 TEUs.

Among the major carriers, American President Lines increased its average vessel capacity from 1,259 TEUs to 2,427 TEUs in 1987, showing a 93% increase in size; Evergreen shot up from averaging 848 TEUs in 1982 to 2,277 TEUs in 1987, registering a whopping 169% growth; Maersk went from 1,567 TEUs in 1982 to 2,588 TEUs in 1987, showing a 65% change; and Yang Ming registered a 115% average growth size, going from a 1,156-TEU average to 2,481 TEUs.

The trend will continue as witnessed by the current building programs of the trans-Pacific operators, with most of the companies hitting the 3,000 and over TEU capacity mark.

Ships on order

Indeed, figures presented by TBS show that APL has five vessels under construction averaging 3,800 TEUs for a total of 19,000 TEUs. COSCO has two vessels under construction averaging 2,700 TEUs. Evergreen has seven under construction averaging 3,428 TEUs per ship, for a total of almost 24,000 TEUs. Maersk has nine under construction averaging 3,400 TEUs per vessel for a total of 30,600 TEUs. NYK has three being built averaging 3,000 TEUs, while Yang Ming has four under construction averaging 3,042 per vessel. The total for the Far East trade comes to 100,164 TEUs in new carrying capacity, which is almost 50% of the total world trade. In all other areas of the world, the TEU capacity under construction was documented by TBS to be 103,936.

Larger vessels have cut operating costs per TEU mile (at 20 knots) from $30 to $18, it was noted.

As industry concentration grew between 1982 and 1987, so did the number of routes served, from 36 to 48. The number of carriers during the five-year period dropped from 31 to 28. Also, the top 10 carriers have increased their control of the trade from 58% in 1982 to 71% in 1987. Reeve noted that this concentration is evident worldwide “as the industry matures.”

Vessel operations now account for 28% of carriers’ costs. The highest cost is now in the port terminal operations, 29%. Inland operations account for 20%, followed by sales and overhead at 13% and container equipment and chassis at 10%.

Growth in double-stack

The carriers’ increased control over inland cargo movements was noted in the TBS study. Here, APL leads the way, increasing its double-stack control from 55,000 forty-foot equivalent units (FEUs) in 1985 to 181,000 FEUs in 1987. SeaLand increased its control from 37,000 FEUs in 1985 to 87,000 in 1987. K-Line and Maersk had none in 1987 but now have control of over 33,000 and 31,000 FEUs, respectively. Evergreen, Mitsui and Hanjin also had none in 1985, but now they have control over 16,000, 26,000 and 7,000, respectively.

Vertical integration

The move toward vertical integration or the diversification by carriers into value-added services was also noted by TBS. Here, consolidations were noted, as were moves into the domestic trucking, freight forwarding, NVOCC, logistics management, warehousing and customs broking fields.

Reeve said that the need for carriers to vertically integrate has been driven by several forces:

  • To improve service to shippers.
  • To differentiate service products.
  • To balance traffic flows.
  • To improve profitability. 
  • To hedge against volatility and excess capacity.

Overall implications

Reeve’s study pointed out the overall implications for carriers and shippers in the Far East trades.

For carriers, the slowing growth (referred to above) increases the risk of overcapacity. Also it was noted that transportation services are becoming more complex, and the investment threshold for ocean carriage is increasing. The latter is up “dramatically,” Reeve said, adding, “We are now looking at billion dollar enterprises” rather than those in the $100 million category. “A carrier can no longer be just a ship operator,” Reeve said. 

Implications for shippers, according to Reeve, are: fewer but larger carriers to deal with; a broader range of services provided by the carriers; and increased opportunities for shipper-carrier partnerships in customized services and long-term relationships.

Larger boxes

During a question-and-answer session, Reeve predicted that container sizes will “gradually increase” in the trans-Pacific. “The 40-foot box is (now) reasonably accepted, and I would not dismiss the possibility of going to 50-foot containers,” he said. 

However, a participant from the audience noted that by the end of 1988, there will be some 30,000 new 45-foot containers available.

Since double-stacking is more competitive over long runs, this will continue to be basically confined to shipments off the West Coast, Reeve indicated. For Atlantic port traffic, trucks will continue to be dominant, he said. Double-stacking is more adaptable to West Coast traffic, Reeve said.

With an expected increase in consolidations, Reeve was asked if shippers face the risk of decreased competition leading up to a monopoly-type situation. “Clearly, once there is a decrease in the number of companies you run this risk,” he said, “but I think the number of companies is high enough” to avoid this risk.

“I do not see a major risk to the shipper,” he continued, adding that shippers actually want to deal with fewer transportation links. “I do not see a major need for heavier regulation,” Reeve said.

European point of view

Professor Horst Linde, of the Technical University of Berlin, was on hand to give a European’s perspective on the Far East trade picture.

While offering the “largest … most important shipping potential in the world,” the trans-Pacific trades are not heavily occupied by European companies, since they are, for Europeans, regarded as cross-trades. The trades compose “a comparatively far-away shipping region for a shipping industry being naturally more interested in home trading than in cross-trading,” he said.

However, some European, particularly Scandinavian companies, are still in the Pacific trades and they are “developing a fairly progressive business policy,” Linde said.

There is a trend toward “multiregional liner services” on the part of the Europeans leading up to worldwide operations. Here, there is the use of transshipping. “Geographical and economical characteristics of the western/southwestern as well as of the eastern/southeastern rim of the Pacific area make practical developments in this direction very probable,” Linde said.

Warning to conferences

Reforms are needed in the liner conference system, Linde said, such as defining tariff systems. He said the conferences are “undercutting their own rates.” The conferences are “undermining themselves.”

“It is no secret that liner conferences … now are in a critical, endangered, defending position,” he said. They have “widely lost their market-leading role and their major functions are no longer satisfactorily working as intended, or actually no longer working at all.” 

Dive into American Shipper’s archives

FreightWaves Flashback: Stowaways — a $20-million problem

FreightWaves Flashback: LA/Long Beach set records

FreightWaves Flashback: Nike: Don’t put too many shoes in one basket