[cube]

$this->bbcode_second_pass_quote('Canuk', 'I') agree - success of companies that outsource manufacturing (Nike...) is due to good marketing and not manipulation of laws. We make choices every day that create the system around us. A company reducing their costs is how the system should work.

[MrBill]

We had a BBQ last night with some more shipping blokes. These guys are younger and do more of the grunt work than the older ship owners, etc. that I usually see on Thursday nights. So again I had a chance to go into more detail about these issues with them. Actually, it was quite a late night, and I hope you can appreciate that many beers went into the making of these observations! ; - ))

First of all, business is booming. They cannot make ships fast enough. Shipyards are springing up all over China. But quality it deteriorating quickly. They say some ships that are only 2-3 years old already look like they have been in service 7-8 years. I assume that means more maintenance and upkeep later. So false economies.

Plus wages are sky rocketing throughout the shipping business. This is important because for the most part the whole shipping industry is run on very low margins. It is a hyper-competitive industry subject to global competition, and very few ways to hide from that competition. So skilled workers are being routinely poached by rivals, and this is driving up labor costs. So it is not just higher fuel prices.

Also, they told me that fuel usage is exponential relative to speed. So by running the ship just 5% slower they save up to 50% in fuel costs. That is significant for them. But that means longer shipping times. So more ships. Also, container traffic is moving to larger ships that call on fewer ports. A hub and spoke system. That means smaller ships, barges and rail to connect those large ports to their final destination. More ships, more fuel consumption.

Apparently the empty container issue has always been one, but there is nothing they can do but suck it up and return them empty. However, it is kind of like when the taxi takes you to the airport. When he quotes you the fare he knows he may have to return to the city empty, so his tariff reflects that. He needs to charge more on his outbound journey to subsidize his coming back without a paying passenger. But if he is lucky he can pick-up one and then his return journey is just pure profit. The same in the shipping business. As they know they will have to ship empty containers back to China they can offer really super low rates to attract cargos. And then that is their gravy.

Slower speeds require longer shipping times, and therefore higher labor costs with more ships that are also being exacerbated by sourcing from farther away. Say the cost of coal gets too high in Australia, so China decides to source from Brazil instead. It takes a lot longer to ship from Brazil then from Australia. This means more ships and more crews. It goes back to Cube's observation about a two-percent price difference influencing purchasing decisions.

In such a competitive global environment government policies matter a lot. Especially taxes. The take-over bid of Hapag Lloyd, Germany's largest shipping company, by Singapore's NOL, who's largest shareholder is Temasek Holdings, part of the government of Singapore, has been made possible because NOL's taxes are lower than Hapag Lloyd's in Germany. Actually, not corporate taxes that are quite similar, but the overall tax burden including social contributions, etc. that companies must pay.

According the Forbe's Misery Index the cumulative overall tax burden is 106.30% in Germany and just 76% in Singapore. That is a 30% difference. In just 2.5 years NOL can increase its after-tax profits by double those of HL. Those tax savings go to purchase better ships and/or to acquire rivals. A ship sailing out of Malta pays zero corporate tax and 73-percent taxes overall. While a ship out of UAE pays just 18-percent in total. A huge competitive advantage in a global industry that knows no borders.

Plus as NOL is owned by Tamesek Holdings they have access to cheaper financing than HL. European Union laws ban state financial aid to national champions. As we know the state-sponsored capitalism model in Asia has no such qualms, so soft loans at favorable conditions are the norm.

It is quite ironical how we (collectively) hog-tie ourselves and allow our competitors to run circles around us, and then complain when we look around and realize all our jobs are gone. It is actually pretty sad. But, hey, economics is not a science, so I guess we can just wish for the desired outcome, and it will magically occur, right? ; - ))

[Canuk]

$this->bbcode_second_pass_quote('cube', 'S')uppose you wanted to buy an airplane ticket and did a search. Assuming everything is equal, one airline advertised a price of $500 while another lists for $510. What's the difference? just 2% However that 2% can make or break a deal. Much like consumers (you and I), manufacturers, distributors, and retailers are equally stingy with their money. I have this theory that 80% of the world's final decisions were all made because of only a 2% difference.

[ROCKMAN]

A great tale Mr. Bill. Even a system which many of the villagers would think was simple is far more convoluted then they could understand.

And I fear for your health Mr. Bill. With volume of knowledged you have gained over the years I'm sure your head is.on the verge of exploding. I know that with just the tiny bit I've gained from your post I'm beginning to see a little discharge from my ears.

[Canuk]

$this->bbcode_second_pass_quote('MrBill', '
')Apparently the empty container issue has always been one, but there is nothing they can do but suck it up and return them empty. However, it is kind of like when the taxi takes you to the airport. When he quotes you the fare he knows he may have to return to the city empty, so his tariff reflects that. He needs to charge more on his outbound journey to subsidize his coming back without a paying passenger. But if he is lucky he can pick-up one and then his return journey is just pure profit. The same in the shipping business. As they know they will have to ship empty containers back to China they can offer really super low rates to attract cargos. And then that is their gravy.

[MrBill]

I am waiting with baited breath (minted) until after the Beijing Olympics. There is a school of thought that says that global imbalances are out of control, and one of the causes is The China Effect.

After the Olympics IF they were to slam the brakes on growth to bring inflation under control then the whole commodities bubble would implode. That along with the broader market decline would deflate commodity and energy related stocks down completing the rout.

Then one could invest with confidence in the long-term Asian growth story. But at these heights it makes a mature man faint. Lehman Bros is teetering on the brink. Freddie, Fannie and Sally are only the latest examples of the new market maxim, Privatize Profits, Socialize Risk. This is a bubble. That may be heresay, but lets talk in Q4.

One is oft rue to forget that the flipside of demand is the willingness and ability to pay. The easiest example I can think of is do you think there is real demand for clean water and adequate sanitation in India or China? If it were so easy as cranking up the printing presses, or banks lending non-existant deposits, then surely we could solve their water and sanitation problems by just tacking a few zeros onto central bank balance sheets. But sorry to say, that is not the way it works.

Ignorance is still our biggest enemy. Even in this age of information.

[Canuk]

MrBill - I think the clean water and sanitation problem is hitting at the same time as peak oil. Many areas have unsustainable approaches to this and problems with aquifers and watersheds will only worsen as energy costs rise. Peak water...

Libya for example is using water that has been stored for 40,000 years under the desert for a one time shot at clean drinking water using their fossil fuel to bring it up - both are in short supply and there is no plan on what to do when it runs out - leave that for the people in 50 or so years to figure out. Here is a link to a short version of the plan.
http://www.drinking-water.org/html/en/S ... Libya.html

It is similar to the world civilizations approach to oil - until the last drop...

[MrBill]

I agree to use you until the last drop do us part.

[Canuk]

An interesting article referring to shortages in port capacity which ties into the discussion of capacity above by MrBill.

http://findarticles.com/p/articles/mi_q ... _n21299644

$this->bbcode_second_pass_quote('', '
')He's not scaremongering. The Bain Consulting Group published a report in May detailing the choking of world ports and lamenting that "few executives at retail or durable-goods companies understand the magnitude of the challenge being forced on them". It warned of a "riptide effect" that would turn outsourced operations in China into a "strategic trap". The situation was becoming so bad, it said, that companies should consider shifting their East Asian operations back closer to home.

China is at the heart of this story. In 2000 its ports handled 1.4bn tonnes of cargo. Last year they handled 5.6bn tonnes and the figure will rise by about 20 per cent this year. China's insatiable appetite for raw materials such as iron ore, coal, oil, asphalt and tin is the reason that dry bulk shipping costs have spiralled. And the country's prodigious manufacturing industry is likely to have the same effect on container shipping. China recently overtook the US to become the world's number-one exporter of manufactured goods. Its neighbours are contributing to the problem. Vietnam's economy has been posting seven per cent growth since 2000, while Malaysia, Thailand and Indonesia are close behind. The effect of this boom has been to increase demand for shipping as much as 20 per cent a quarter. This is a serious problem when the supply takes years to catch up.

[MrBill]

There was an article in The Economist last week about building large trans-shipping ports in North Africa on the Mediterranean. Those ports are already as large as ARA and plan to handle super large cargos from Asia - one-third of ship traffic passes through the Med via the Suez Canal and Bosporus Straits - to be off-loaded and then sent onwards in smaller vessels.

Along with natural gas exploration and export this is the first piece of good news I have heard coming out of that area of the world for ages. It makes economic sense. They have the space and lots of under-employed labor. This creates needed jobs. A clear case of build it and they will come. Transmodal shipping using water and rail is the best for long distance, bulk transport. As Cube points out though it is the distribution over the last 100-miles though that is horribly inefficient.

On a related note, I read that Prince Rupert, B.C., is increasing capacity again to take traffic away from Vancouver that is suffering from under-capacity. They do not have the room to expand operations.

[ReverseEngineer]

Clearly the increasing price of oil and the ever reducing supply has to have an effect on shipping as long as its oil powered. Building bigger ships and waiting until they are absolutely full up before shipping of course helps in economies of scale, but still long term its a bad solution because eventually its not just Peak Oil but No Oil.

So my question is why not NOW start to build many smaller cargo vessels that use SAIL power? Sure they move slower, but if you have to wait anyhow to fill up a huge container ship, if you have many of them plying the oceans you could transport about the same amount of goods that one large container ship does in just about the same amount of time.

Sail power is ALWAYS going to work, and it costs NOTHING to the shipper. So how long before we see the Square Rigs come back?

ReverseEngineer

[ReverseEngineer]

The shipping of goods problem is one we solved neatly in the era of cheap energy. Across oceans, big container ships. Across continents, railroads. Locally, big rig trucks, which I drove for 5 years throughout the lower 48 and Canada.

As we devolve downward toward a society where the gas or diesel powered engine is no more, its important to think about how the same tasks were accomplished before Big Oil came to rule the world. There was inter-continental trade in goods, and food grown in upstate New York did make it down to NYC down the Hudson River. Pulled into local neighborhoods by wagons pulled by horses driven by the Teamsters.

Now, clearly its about impossible to either grow as much or move as much in the absence of Big Oil, as we devolve downward here there has to be a population die off which represents accurately what we actually can grow and move about without Oil. In da olden days around say 1750, it was slightly under 1B people if the census estimates from that period are accurate. We certainly could live the same way we did back then, so the postulate that society comes to a complete END in the absence of oil isn't necessarily true. It would only be true if we have so polluted the environment as to not be able to grow what we did back then, and at least to this point in the absence of thermonuclear warfare I don't think we have screwed it up THAT bad. 20-30 years after factories stop generating waste and flushing it into rivers, Mother Nature will clean those rivers up enough for the Fish to move back in.

There is no substitute for oil in terms of packaged energy an individual vehicle can use to move around quickly and autonomously. Battery technology isn't there to really do that yet, and probably never will be because the batteries themselves take oil to produce. However, this is not to say that Transportation and Shipping comes to a complete HALT in the absence of oil, because all the old technologies still work, and we can actually make improvements on many of them based on what we know NOW how to do.

Larger Sailboats than ever existed in 1750 are quite possible utilizing the Hulls of ships already in existence, which themselves are probably good for another 100 years if they are well maintained. Railroad tracks are already layed, and railroads can be powered in any number of ways that do not require Oil or even Coal. Windmills all along the rail line being the most obvious solution there. You could of course even have teams of horses pulling rail cars.

At the stops along the rail line, Teamsters line up to take the goods off the railroad to their local communities. The whole operation still WORKS, it just works somewhat slower but not so much slower that it doesn't work in tandem with nature's cycle of the actual production of food. You will still need storage facilities, grain silos and the like, but you can keep a constant FLOW of goods moving.

Inside local communities, you can still travel to the Grocery store to stock up. You have your Horses of course. Bicycles exist now in enough numbers to certainly provide every person who survives with a bicycle 50 years from now, my aluminum model probably lasts 100 years. Still will need new rubber tires, but as long as their is trade on the ships from Brazil you still can produce rubber tires for quite some time to come. New enzymatic processes and energy harvested from the sun and from geothermal sources can keep enough factories running to produce this kind of goods even in the absence of oil. Never as much as we produced utilizing the millions of years of fossil fuels, but at some point a balance is struck here, and it will be above the balance struck in 1750 before we knew nothing at all about this stuff. My projection is for a 2B human soul population on Earth as maximum carrying capacity under such a paradigm. Smaller than we have now no doubt, but the end of civilization? Not necessarily. That IMHO only happens if the Wars we fight for the possession of the remaining oil thoroughly pollute the planet to the point it can no longer support human existence. This might happen, but its so counter productive that it might be avoided. We avoided it with the Soviets, though we both had the capability of destroying each other during the cold war, nobody pulled the trigger then. I think much more likely is we fight conventional wars until there simply is not enough oil left to run a mechanized war effectively. Then it gets local, and after some time enough are dead that its possible once again to rebuild the societies. At no time in the past did human beings ever kill off enough of each other to completely wipe out social rebuilding. It is possible it can happen, but it hasn't happenned in the past.

We have become so enamored of oil and the mobility it provided that it seems impossible to imagine society without it. But society DID exist before oil, and so it will after. Just it won't look quite the same as it does now, and that is a good thing.

ReverseEngineer

[MrBill]

$this->bbcode_second_pass_quote('', 'S')ail power is ALWAYS going to work, and it costs NOTHING to the shipper. So how long before we see the Square Rigs come back?

[ReverseEngineer]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', 'S')ail power is ALWAYS going to work, and it costs NOTHING to the shipper. So how long before we see the Square Rigs come back?

[MrBill]

Well, if you're so smart, and sure the economics are there already, then you should open up a shipyard. Good luck. Let us know how it turns out? Cheers.
Yatch World - new and used sailing vessels

[idiom]

Modern Sailing ships have square sails and no rigging. Very very small crew needed.

Rigging would get in the way of continer cranes.

[MrBill]

Well, as mentioned already in this Forum fuel usage for container ships are parabolic, so ships can save a great deal of bunker fuel. The figure I was quoted by someone that works at the largest German shipping company here in Cyprus was a 5% reduction in speed saves up to 50% of fuel consumption. But they also indicated that this increases crew costs and that there is a worldwide shortage of qualified seamen at the moment.

Also, most ships that I have toured can run on many types of bunker fuel and therefore are very flexible depending on the economics of various fuels as in the least cost formulation. In general bunker fuel tends to come from the heavy end of the barrel. Ships do not compete per se with lighter transport fuels like gasoline and diesel. Although smaller boats may. Ships run on the heavy, nasty stuff.

Just like regular gasoline and diesel refining affects the supply of jet fuel or kerosene, so does demand for those transport fuels affect the supply of heavy oils as well. But as these ships are designed to run on basically anything that burns they can also run on bio-diesels or coal to liquids as well.

The newest wind assisted sail vessel was put into practice this year. It has a computer assisted sail that flies far above the deck of the vessel, and therefore does not get in the way of cargo containers. I cannot remember, but I believe its creators felt that it might cut fuel usage by another 25-30% over non-wind assisted vessels.

Also, per earlier posts in this Forum the cost advantages to intermodal container transport are such that their economics favor them overwhelmingly over 'loose' bulk transport that needs to be loaded and unloaded by hand or smaller cranes. Something like a 95% cost saving in favor of containers. Of course, you can still see those types of vessels in places like Dubai as well that ply between smaller ports in and around Asia. However, they are much more susceptible to the vagaries of piracy that is on the increase in that area of the world.

So although high fuel prices will affect the economics of long distant transport they do not, yet, favor labor over fuel. And water transport whether by ship, boat or barge is still the most fuel-efficient even compared to rail. So this will still favor large ports for very large vessels and then cross-loading unto smaller ships as well as barges for regional distribution. Wind and solar will play a secondary role as wind assisted sails cannot replace the ship's engines and/or as wind and solar are used to run onboard electric functions.

By the time we return to sailing ships for cargo transport we will no longer be living in a globalized world where manufactured goods are consumed somewhere else halfway around the globe. Those sailing ships would instead only transport low volume, high value cargos that do not spoil quickly like spices, coffee and tea, for example. I somehow doubt that the demand for iPods then will be terribly strong.

[cube]

$this->bbcode_second_pass_quote('MrBill', 'W')ell, if you're so smart, and sure the economics are there already, then you should open up a shipyard. Good luck. Let us know how it turns out? Cheers.
Yatch World - new and used sailing vessels

[MrBill]

That's right. There is always a trade-off between cargo space and hydrodynamics in hull design. As water is 800% times heavier than air, and taking into account waves and currents that also slow the ship down, it is clear the size of sails a container ship would have to have. There would either be too much wind or not enough. Much easier to move production closer to consumption and reduce the length of the supply chain.

$this->bbcode_second_pass_quote('', ' ')July 2008

Global executives increasingly identify the environment, including climate change, as a top concern. When it comes to purchasing, however, it appears that companies aren’t necessarily translating the importance they place on climate change into action. A McKinsey survey of more than 2,000 global executives finds that while nearly half of respondents say that climate change is a somewhat or very important issue to consider in purchasing and supply chain management, fewer than one-quarter report their companies always or frequently take climate change into consideration in these areas. Among high-tech and other manufacturing executives, 54 percent and 56 percent of respondents, respectively, say climate change is important in purchasing, yet these executives were no more likely than average to say it was considered in practice.

They may be missing an opportunity. Our analysis suggests that for consumer goods makers, high-tech players, and other manufacturers, between 40 and 60 percent of a company’s carbon footprint resides upstream in its supply chain—from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 percent. Therefore, any significant carbon-abatement activities will require collaboration with supply chain partners, first to comprehensively understand the emissions associated with products, and then to analyze abatement opportunities systematically.

Surprisingly perhaps, we find that many of the opportunities to reduce emissions carry no net life-cycle costs—the upfront investment more than pays for itself through lower energy or material usage. Others, however, will require tradeoffs between emissions and profitability, in areas such as logistics and product design (including product specification and functionality). Forward-looking companies are using such discussions as opportunities for supplier development, for example by transferring best practices in manufacturing, purchasing, and R&D—as well as energy efficiency—to key suppliers. This opens the possibility of still lower costs and improved operational performance, in addition to helping suppliers remove more carbon from their supply chains.

[dorlomin]

We have a lot of coal to burn long before we need to turn to wind for ocean transport. Ofcourse though there is a labour issue with stoking boilers. Bunker oil gets fed in by flicking a switch. Coal needs a 'black gang' with shovels and back break labour.