41% of air cargo and 37% of container shipments under threat
All in all, the commercial transportation industry is in an enviable position. Fuel prices have tumbled and are not likely to return to stratospheric levels anytime soon. Traffic volumes, especially in the United States and some developing countries, are strong and forecast to improve further as the impact of the recent severe recession recedes. Moreover, the enormity of the downturn forced most transportation firms to cut costs sharply and identify efficiency opportunities in their operations just to stay above water.
The success of those efforts has streamlined many of these companies significantly, putting them in a position to continue taking advantage of real earnings growth even as they add jobs and expand. When times are good, as they are now, transportation companies would be wise to shed short-term and examine the real but not immediately obvious disruptions that may be on the horizon to anticipate today rather than react later as referred to in Commercial Transportation Trends of 2015.
One structural change that should be given careful consideration is not even in current discussions among transportation company management, but it will have to be before long. That development is 3D printing. Seen by manufacturers as a way to streamline operations, improve quality, and lower costs. 3D printing has substantial implications for both domestic and international freight businesses, particularly in reducing the importance of some transportation lanes while possibly opening up new ones.
In a recent strategy and analysis of nearly two dozen industry sectors, it was found that as much as 41% of the air cargo business and 37% of the ocean container business is at risk because of 3D printing. Roughly a quarter of the trucking freight business is also vulnerable, due to the potential decline in goods that start as air cargo or as containers on ships and ultimately need some form of overland transport. Rail companies are not as vulnerable because the goods being hauled, typically bulk materials like coal, grains, and liquids don’t lend themselves to other transport modes.
Perhaps the salient way that 3D printing could disrupt the transportation sector is through its impact on what goes into a product. Traditionally manufactured items often have dozens or even hundreds of parts that must be produced separately, delivered to a factory, and then assembled. A product made on a 3D printer, by contrast, generally has far fewer parts.
As 3D printing becomes more common, many products, their parts, or the raw materials needed in their manufacture can be made locally reducing or eliminating the need to ship them to market. Footwear and toys, for example, are likely to require much less shipping in the future because they both have relatively higher shipping costs and are highly suitable for 3D printing.
A good example is General Electric’s jet fuel nozzles. Under the traditional method, this component contained 18 separate parts made from a variety of raw materials. All of these parts had to be machined, cast, brazed, and welded before final assembly. Now, the nozzles are made from a single alloy using 3D printers with a process known as additive manufacturing, in which successive layers of the alloy are melted, shaped, cut with lasers, cooled, and then laid down on top of each other to produce the finished part. These nozzles are lighter, more durable, and more fuel efficient than conventionally manufactured ones, GE says.
Or consider the Strati, a car designed by Phoenix based Local Motors. Whereas typical cars have tens of thousands of parts, the Strati has fewer than 50. The car’s body is made from thermoplastics on a 3D printer; non-printed parts include the motor, transmission, wheels, and steering column. You won’t see a Strati on the highway anytime soon (the maximum speed is around 40 mph, and the car doesn’t meet requirements for highway use), but it may not be long before someone in your neighbourhood is tooling around in one of these electric vehicles, which will weigh about two-thirds of what a typical car weighs and will sell for between $ 18,000 and $ 30,000.
Drilling down into this data, we identified which industries are most likely to reduce their reliance on commercial shipping because of 3D manufacturing. Using suitability for 3D printing as one gauge and the percentage of total transportation costs as the other, we found that footwear, toys, ceramic products, electronics, and plastics have the highest potential for disruption. Sectors such as perishables and pharmaceuticals, however, find 3D printing a less viable alternative.
Now 60ft containers on trial
Retailer Canadian Tire has ordered four 60ft intermodal containers from American Intermodal Container Manufacturing (AICM). The 60ft container was developed by Canadian Tier’s transportation team as an intermodal solution to increase productivity and efficiency while reducing the company’s carbon footprint, a spokesperson said. The added size allows the company to transport more products while reducing its transportation costs and greenhouse gas (GHG) emissions. The 60ft container will allow for 13% more payload, which will result in greater cost savings and GHG reductions for Canadian tire.
AICM is in the process of setting up a new facility to build containers, including 53 domestic boxes, in Cherokee, Northern Alabama. The 60ft box is currently in the prototype stage and no launch date has been confirmed yet. This is believed to be the first time anyone has tried a 60ft long container, but it follows a general trend towards longer transport units in Ontario. In 2008 Ontario began a pilot project for Long Combination Vehicles which are trucks with two 53ft semi trailers within a permissible maximum overall length of 40m. In 2012 Walmart began testing a 60ft drop deck trailer and five carriers have been approved to test other 60ft trailer types, including a reefer unit, in Ontario.
Port congestion boost container charter market
Port congestion has provided the containership charter market with a huge boost in rates in recent weeks, while also keeping the inactive box ship fleet at low levels. The latest Lloyd’s List Intelligence figures show that last week, the inactive box ship fleet stood at just 1.2% of the total containership fleet, representing 225,223 TEU. This is far below the levels normally recorded at this time of year, when the inactive fleet tends to balloon for the quieter winter period.
For instance, this time last year, 3.2% of the total fleet remained inactive, while in 2013, the figure stood at 3.1%. The inactive fleet is usually at its highest level in the March-April period. Hamburg Shipbrokers’ Association, Managing Director Alex Geisler said there had been a spike in demand for containerships because of congestion at west coast US ports. The well documented congestion in the US has been compounded by ongoing congestion in Manila; while there have also been reports of vessels facing a slight wait in Shanghai in January. Shipping lines have been attempting to maintain schedules by bringing in extra ships. The panama and post panama fleets have seen the greatest take up in use when comparing the figures to those of last year. In the 5,000 TEU – 7,499 TEU sector, just 18,944 TEU of capacity is inactive at the moment, compared with 150,457 TEU this time last year. In the 3,000 TEU – 5,000 TEU sector, 36,290 TEU is out of action at present, compared with 173,980 TEU a year ago.
Vessels of between 1,000 TEU and 2,999 TEU have also seen a take up in use, with out of action tonnage for this sector standing at 71,219 TEU at the moment, against 112,857 TEU this time last year. As well as congestion helping to reduce the capacity of vessels taken out of action, there have been high levels of scrapping recorded over the past few years.
Carrier reliability declined in 2014
Annual schedule reliability performance figures from SeaIntel Maritime Analysis show 19 of the top 20 shipping lines recorded a decline in on-time performance last year, with only CSAV recording an improvement in performance. Maersk Line ended the year as the best performing carrier, with an on-time rate of 83.7% last year, but this is down from the 87.8% it recorded in 2013. CSAV saw its performance improve from 77% in 2013 to 77.5% in 2014. NYK was the worst performing carrier, as its on-time performance slipped to 66.7% in 2014 from 77.5% a year earlier.
SeaIntel said the gain recorded by CSAV was down to the fact that it does not engage on the transpacific trade lane and only has a few services to North Europe, both of which were hampered by congestion in 2014. Over the summer, congestion as a significant issue in the major hub ports in Northern Europe, which led to changes in some of the carriers’ services and omitted port calls, the analyst said.
The single incident that impacted carriers and shippers the most in 2014 was the heavy congestion we have seen in Los Angeles, Long Beach and in the main ports on the northwest coast, a problem that is still ongoing as we enter 2015. Finally, the industry has also been witness to congestion in Hong Kong, Shanghai, Qingdao and a number of the major ports during the year. Global carrier performance slipped 7.6 percentage points in 2013 to 72.2% in 2014.
(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).