Building a future of waste.

Containerization is considered one of the most significant breakthroughs in the development of modern logistics and supply chains. The ability to efficiently and cheaply transport finished goods and parts around the globe has been a significant contributor to outsourcing and globalization.

The Wall Street Journal reports today that the next generation of container ships are getting ready to hit the high seas.

The MSC Daniela is a glimpse of the future. The size of an aircraft carrier, the ship completed its maiden run from Asia to Europe this month packed with 13,800 containers, or equivalent units, each big enough to contain all the contents of a three-bedroom house.

Thirty-five ships of Daniela's scale are scheduled to hit water in 2009, doubling the number floating today. They'll make up roughly a quarter of the net increase in container capacity on the high seas. The Asian companies that make up 16 of the top 20 container shippers are also ordering the ships, led by China's Cosco Container Lines with 24. By 2013, some 200 ultralarge ships will be in service around the world.

Meanwhile, a ship capable of fitting 22,000 containers has been designed by South Korea's STX Shipbuilding Co.

This enormous increase in capacity is good news for companies that import:

Shippers are eager to avoid partially filled vessels at almost any cost. "To fill their big boats, these guys will cut their price to any level for customers," said Dirk Visser, an analyst at Dynamar NV, a Dutch consultancy.

With overcapacity due to the global economic downturn and a steep drop in shipping rates, the temptation to expand outsourcing is -- and will continue to be -- powerful. But the financial benefits from expansion of long-distance/low-cost suppliers is chimerical. Yes, today's P&L will look better as transportation costs decline. But the buildup in inventories, the difficulty of spotting and correcting errors (are you listening, Boeing?), and the challenge of responding rapidly to customer demand means that the rewards aren't quite what they seem.

Maybe they should christen this latest ship the MSC Siren.

Comments

[Renaud Anjoran]

I understand your point, but I think it makes sense for well-traveled routes such as Hong Kong-Los Angeles. Increasing scale lowers average unit costs. It will make the total landed cost of Asian production lower by a tiny bit, and it shouldn't change any player's incentives by much.
The main problem, in my view, is the long distance between production and market. Chinese factories make in large batches, which makes for huge inefficiencies, that's right. But they don't have a strong interest changing their habits, since they often have to ship large quantities all at once!