Introduction
In the last article, it was suggested that some of the difficulties in setting standard rates (or, at least, rates that do not fluctuate so widely) for freight shipping might be addressed by technological and strategic advances. Logistic companies like Fedex, UPS and other small freight carriers are able to record good profitability with relatively slow movement in their freight charges. Theoretically this should also be true of freight shipping rates.
Analysis
Shipping rates have evolved over millennia to their current state, but is this how it would be done if started today from scratch with a clean sheet of paper, no preconditions and present-day technology?
This is a very large problem to tackle but, for the purposes of this article, it makes sense to focus on what is needed to for a shipping company transporting goods at fixed rate charges from port A to port B.
There are three stages to a products journey from Manufacturer to Consumer in our sea-freighting scenario. These are Factory to Port A by barge, train or truck, Port A to Port B and then Port B to consumer by barge, train or truck. This article looks at Port A to Port B as a link in a logistic chain. It does not address the area of concern that competition plays in minimising prices, nor does it look at national interests that may come into play.
Shipping companies are in the logistics business. Their business is transporting goods across the oceans of the world. To do this, they buy ships, fuel them, man them and send them to where they are needed. In reality, their business is organising cargoes. One problem they repeatedly face is fluctuation in demand and ship utility. When demand is high, they must go to shipyards and order more vessels, generally this coincides with their competitors doing the same thing and shipyard capacity is at full stretch.
Shipyards build ships to order, and their business is also deeply affected by market fluctuations. Given that many shipyards employ tens of thousands of men, then balancing supply and demand can be a major headache.
In the following much simplified diagram, the connections and nodes between maritime logistics and service providers is shown. It omits those connections between primary industries such as mining and agriculture, secondary industries such as manufacturing and tertiary industries such as insurance, communication, and finance. These three sectors have differing requirements and their interconnection and co-dependency has different effects on national economies during the economic cycles of world trade.
From: Game Theoretical Aspects in Modeling and Analyzing the Shipping Industry by Xiaoning Shi and Stefan Voß
What If
The history of ships stretches back 11,000 years while the shipping industry has only 9,000 years of development. The current state of the industry is a result of evolution tweaked occasionally by technological advances. If we were to design a system for transporting goods across oceans starting today and using current technology, would we still end up with the same system?
Logistics industries that cannot boast such a lineage operate in a slightly different manner. Large air cargo companies such as FedEx, UPS and DHL own, crew and maintain their own fleets out of dedicated clearing hubs leased from airports around the world. The largest road cargo companies such as FedEx, UPS and XPO have a similar model. Of course, that is not the only model as the system might be to own the clearing hubs and lease the vehicles, own both vehicles and hubs or lease both. We will put rail freight to the side for the moment as they have several different special characteristics.
Optimising logistics would involve maximum miles with minimum handling. For shipping that would imply load the product in a container or haulage carriage or tanker, deliver to the dock, load onto a ship, offload and organise at the receiving port then deliver to the customer. The shipping company dealing with the process would be in total control of all the steps involved. Some shipping companies are already taking steps in this direction, but smaller companies may have to band together in co-operatives of some kind.
The cost of ownership of the assets necessary may need to be examined in detail but financing the structures is not the subject of this piece. Upstream of the shipping company are the shipyards that build the ships, fuel suppliers, companies that supply ships crew and cargo handlers and companies that insure and class (certify) the ships, planes, and trucks.
Shipyards are notoriously vulnerable to the vagaries of world trade volumes with orders drying up or delayed at the whim of the markets. The same is true for airplane manufacturers and heavy truck manufacturers. It might make sense for some partial decoupling to take place whereby the shipyards et al, not only build the ships, planes, or trucks, classify and insure but also, probably through some allied company partly owned by financial institutions, retain ownership of the vehicles and lease them to the logistic companies. They would then have some control over the models they produce (currently ships are pretty much one-offs no matter that they are sister vessels, there is always some individuality creeping in) and of the pace of production with the leasing company acting as buffer between supply and demand. This works for both shipping companies, shipyards, and governments which bankroll (in various roundabout ways) shipyards. They have had to do this as slumps in ship orders cause major unemployment issues. When it is not done, then the ship-building industry folds in that country as in, for example, the UK. Decreasing the variation in production of ships will also allow greater automation in an industry that has always depended on lots of low-cost labour.
This still leaves the thorny optimisation of on-board crews and varying fuel prices.
If Autonomous Shipping was an established practice, would we still consider putting crews on board? There are perfectly reasonable arguments for manning autonomous ships. A ship is a conglomerate of mechanical devices controlled by fancy electronics. It is possible to automate all the attention needed by these mechanical devices (greasing etc.) and provide sufficient redundancy to offset any potential failure but then the cost of the vessel exceeds the savings of de-manning. On the other hand, it is possible to attempt all the activities when the ship comes alongside for unloading and loading but cramming, say, 10 days’ worth of maintenance into 48 hours of cargo transfer may be counterproductive.
Does the crew need to be on board? The navigation and command assistance that an analogue human could offer might easily be performed from the comfort of a land-based control room but the analogue sensor array that a human possesses would be far less effective. Human captains and crew can appreciate how the birdlife and sea-life are behaving, how the sound of the wave’s changes, or how the quality of the light is changing. These are all clues to environmental effects that AI for all its capabilities would fail to appreciate. Against this is the fact that putting small crews on board with little more than a watching brief is a recipe for disaster – idle hands and all that.
There is an issue with who employs any crew. Senior crew tend to be more permanent employees while lower ranks are frequently agency. It might make sense for crews to hire themselves out as a complete unit from Captain to Greaser.
Of course, many shipping lines are already partway down these paths. The shipping industry may not completely acknowledge its future, but it is (slowly) preparing.
There is a plethora of decarbonised fuels being promoted and all have their pros and cons. This article is not the place to discuss them, but it should be noted that small nuclear is becoming far more feasible and soon, perhaps, commercially competitive.
