The Role of Logistics in Global Trade; Sea Ports and Shipping Companies Analysis

Introduction

Our world daily grows smaller in all practical respects, due to advancements in technology, the ease of modern travel, the increasing collapse of national boundaries, and the frequency with which global bodies and international organizations push for further actions that create freer movement of people, goods and services across nations.

This ongoing trend towards globalization has led to an increase in global or international trade.  International trade, also called global trade, typically encompasses all commercial traffic between nations and includes the buying, and selling of goods, services, capital, and labor across national borders. It may also embrace non-profit exchange of goods such as in Aid to poor or distressed nations.

Volume of Trade is increasing

Today, the sum of exports and imports across nations is higher than 50% of global production. At the turn of the 19th century this figure was below 10%. (1) According to the World Trade Organization in its report, “Trends in world trade: Looking back over the past ten years(2), World exports of manufactured goods increased from US$ 8 trillion in 2006 to US$ 11 trillion in 2016. This is a good development especially for developing economies that can thus access foreign markets and supply chains that have hitherto been inaccessible to them. According to the World Bank in a new study on trade logistics as reported in the Economist Magazine: The ability of developing countries to connect firms, suppliers and consumers to global supply chains efficiently is essential to their competitiveness. (3)

This back and forth of goods happens every day all across the world on an incredible scale. For instance, according to a Wikipedia article (4) on international trade, in 2015 alone, the 3 most traded exports in the world were Crude Oil at $786.3 Billion, Cars at $672.9 Billion, and processed petroleum at $605.9 Billion. In order to move just one of these three products, say crude oil, to the different destination countries, it would entail shipping a little more than 117.3 billion barrels filled with crude oil. How then exactly is this transported?

The Transportation Question

The world’s supertankers today have the capacity to carry up to 2 million barrels of oil.  (5) So it would take about 58, 679 (Fifty eighth thousand, six hundred and seventy nine) of these to convey that amount of crude oil alone to destinations all over the world. According to www.planete-energies.com there are 11,000 oil tankers traversing the world’s seas currently.  (8) So each tanker would need to do the work of five tankers, increasing frequency of trips, and more time spent on the sea lanes. Also note that standard tankers (not super tankers) will usually carry a much smaller load, and by no means are all 11,000 tankers in the global fleet super tankers. We must also note that that oil comes from 98 (6) oil producing nations across the world with presumably at least 1 working seaport each. This sea voyages usually take some time. For instance, a ship sailing from a European port to a US port will typically take 10–12 days depending on a number of variable factors. (7)

Using a hypothetical scenario, this oil will therefore leave 98 seaports in over 10,000 tankers at any one time, travel between 200-8000 nautical miles, making a stop in at least 1 other port each en route, ultimately to berth at the 197 nations of the world that need its precious cargo, and that have at least 1 working port each also, or some 197 ports in total. 10,000 plus ships, destined for at more than 100 sea ports, and making pit stops along the way. This hypothetical simulation is conjecture but is based on realistic and conservative estimates. This must also take into account that global demand for crude oil is predicted to continue to increase every year. (9)

This concerns crude oil alone in a given year. Factor in the exports and imports of other goods such as Grains, (rice, corn, wheat, barley, soy beans, etc), other foods (such as vegetable oil, potatoes, sugar, beef, poultry, fish, etc), cash crops (cashew, cocoa, coffee, etc), Telecommunication and computer equipment, devices and accessories, solid minerals, steel, aircraft, military armament and supplies, fruits and vegetables, and processed foods.

These goods are conveyed by means of aircraft, shipping vessels, trains, and automobiles, and are usually stored in containers, the standard choice of transit storage in international trade.

According to www.billiebox.co.uk “there are currently over 17 million shipping containers in the world, and five or six million of them are currently shipping around the world on vessels, trucks, and trains. In total, they make around 200 million trips a year. It’s estimated that there are 10,000 shipping containers lost at sea every year. That’s almost one container every hour!” (10)

These containers and the goods they carry need to arrive at the correct destinations in a good state and in a timely manner, need to be accurately tracked while in transit, at sea, in the air and on land. Additionally, both sending and receiving parties need to be kept abreast of developments on a daily if not hourly basis. The seamless operations that make all these possible and keep the world functional, are all thanks to international logistics.

The Role of Logistics in Global Trade

Without proper logistics, trade across national borders would be impossible. Currently with little or no restrictions to trade, companies as a result of fierce international competition must ship finished goods at the lowest possible cost and in the shortest reasonable time, if they are to remain competitive. International logistics manages the receiving and delivery of goods and products along the value chain from points of sale to final destinations all over the world. It includes handling, packaging, the storage of goods in transit, inventory, payment of custom duties and taxes as applicable, and observance and compliance with local trade regulations.

International logistics is the domain of LSPs or logistics service providers, and comprise international freight forwarders (which may be either 3PL or 4PL providers), shipping companies and brokers, airlines, local trucking and distant haulage firms, and courier companies.  Many times, the chances of any one producing company remaining competitive are in direct proportion to the efficiency of its logistical support.  Logistics service providers rely on both human resources as well as up to date technology to carry out this challenging task of transferring “the right shipment from the right seller to the right buyer in the right condition at the right time”. ICT especially is of immense help to track shipments and keep everything organized.

As a result of the work of logistic service providers, companies may safely focus on producing high quality goods and materials, leaving the complex task of onward distribution to points of consumption to LSPs. To execute this undertaking flawlessly, logistics service providers depend on a veritable array of transportation modes including air, track, road, and sea freight.

Sea Freight as a component of International Logistics

Sea freight is the most used methods of transporting cargo around the world today. According to Wikipedia, Merchant shipping is the lifeblood of the world economy, carrying 90% of international trade with 102,194 commercial ships worldwide.  (11) Sea freight encompasses the use of all water bound craft to move goods across the globe. It has come to be that the purely maritime terms “shipping” and “shipment”, are today synonyms for the conveyance of merchandise from origin point to point of consumption, irrespective of the mode of transportation actually used to do so. The reasons for the preference of freight transportation by sea in international logistics are fairly basic:

  • Large capacity or volume haulage of cargo per trip
  • It is cheap or economical
  • Relative safety of merchandise

Sea freighting utilizes ocean going vessels called cargo ships. Cargo ships are designed to move a vast quantity of goods across countries. They come in different types, sizes and functions and include bulk carriers or cargo ships primarily used to carry bulk or large cargo, RoRo (roll on roll off) popular for conveying vehicles because the vehicles can just be driven down at sea ports, and tankers which carry liquid such as crude oil and refined petroleum.

Others are container ships which implement Containerization or the movement of goods by storing them in containers, multipurpose ships which carry an assortment of goods, and refrigerated ships which carry perishable cargo such as frozen poultry products.  Coastal trading vessels are not cargo ships. They are smaller, of shallow draft, and serve the vital purpose of moving goods around the same continent or general region. They are typically called coasters. Coasters can be set up as self-dischargers.

Containerization

This term refers to a popular method of freight transportation in which containers are used to securely store goods and machinery while in transit. Containers are measured using a unit of measure called TEU (Twenty foot Equivalent unit) Standard containers are usually in the dimensions of 20 foot (1 TEU) and 40 foot (2 TEU).  (12) Standard shipping containers are eight feet wide and eight feet six inches high. Containerization is effective because the system can accommodate a variety of different goods and machinery, which are packed into containers first and then put into the transportation vehicle. While containerization is possible using land transportation modes such as rail and by trucking, sea freight is the defining demonstration of this process of moving goods.

Containerization in sea freight transportation is accomplished by loading containers on container ships. A large container ship can carry an impressive number of containers on one trip. According to http://www.portinfo.co.uk “Ultra Large Container Vessels (ULCVs) such as the Emma Maersk (lead ship of the Maersk E-Class vessels) are able to carry approximately 15,000 TEU” (13) or between approximately 400 to 800 containers depending on container size. Containerization as a type of shipment of cargo began in the seventies and is one of the primary ways of moving goods internationally today. Container ships tend to be massive in size, with new and larger vessels built almost every other year, each one larger than the last.

www.humansatsea.com says the largest container ship in the world currently is the OOCL Hong Kong, which  is “the largest container ship yet built, and the third container ship to surpass the 20,000 Twenty-foot equivalent unit (TEU) threshold. She was built at the Samsung Heavy Industries, Geoje shipyard with yard number 2172 and delivered in May 2017. OOCL Hong Kong has a capacity of 21,413 TEUs, and will serve the route to North Europe from Shanghai, Ningbo, Xiamen, Yantian, Singapore, via Suez Canal, Felixstowe, Rotterdam, Gdansk, Wilhelmshaven, Felixstowe, via Suez Canal, Singapore, Yantian, Shanghai in a 77-day round trip.(14)

Sea Ports

Sea ports are to the maritime or shipping industry as airports are to the air transport sector. Ships and other maritime craft typically “put to” or halt at sea ports all over the world. Volume of container shipment as well as cargo tonnage determines how busy a sea port is. Some of the busiest ports in the world are found in China, Singapore, Hong Kong, the USA, the UAE and South Korea.

The world’s busiest sea port by volume of container shipment in TEUs is the port of Shanghai in China. In 2017 the Shanghai port processed about 40 million TEU containers carrying 736 million tons of goods. (15) This comes down to about 109,589 containers every day. The Shanghai port includes the Yangshan Deep Water Port & Waigaoqiao Shipping Terminals, and is operated by Shanghai International Port (Group) Co., Ltd. Its URL is www.portshanghai.com.cn (16) The port of Shanghai is located on an island connected to the Mainland by a 32km sea bridge.

The port of Busan in South Korea processed 20 million TEU containers, while the Dubai port in the UAE processed about 15.5 million TEU containers in 2017. In the same year, Singapore port in Singapore, coming a close second to Shanghai, handled some 33 million TEU containers. (17) “Port Miami in the USA remains the world’s Busiest Cruise Port with more than 4 million passengers last year”. (18)

Sea Routes

Shipping routes or shipping lanes include natural or manmade waterways for ships and other water bound craft. Shipping routes are important to international trade because they aid shipping vessels to get to their destinations quicker and safer. Some of the most used sea routes in merchant shipping are:

The English Channel

The English Channel is the most used sea route in the world. It exists between England and France, and connects the North Sea and the Atlantic Ocean. The English Channel is 350 miles long, 20-150 miles wide, and 150-400 feet deep. About 500 ships travel the English Channel every day. This makes it one of the most popular shipping lanes in the world.

The Strait of Dover which is located at the narrowest part of the English Channel connects the Baltic and the North Sea, and sees approximately 400 shipping vessels daily, carrying a variety of goods such as oil, machinery, grain, and steel.

Strait of Malacca

The Malacca Strait is the link to many Asian nations which include Malaysia, Taiwan, India, South Korea, Indonesia, China, Japan, and Singapore. It is currently the shortest route between the Pacific and Indian oceans. The Strait of Malacca is the world’s second most used sea lane. Each year more than 83,000 vessels use this route or about 40 percent of global trade. (19) It is particularly popular for crude oil shipments.

Panama Canal

Before the Panama Canal was built in 1914, ships had to make a sometimes 2000-8000 detour to access either the Atlantic or the pacific from either ocean. The Panama Canal was designed to cut short the time necessary to connect the two oceans. Tolls are paid when sailing the canal. More than 14,000 ships navigate the Panama Canal every year, or about 30-40 each day (19), and it is a very strategic waterway for global shipping and trade.

Other important water ways include the Suez Canal, the Bosporus Strait, the Strait of Hormuz, the Danish Straits, and the Saint Lawrence Seaway. (20)

Shipping Companies

The shipping companies in the world are measured using the weight carrying capacity of their combined shipping vessels calculated in TEUs. The three highest ranking shipping companies in the world currently are:

A.P. Møller-Maersk

A.P. Møller-Maersk is a Danish shipping company. The Maersk Line is the container shipping division and operates a fleet of 580 container vessels making it the world’s top shipping company. The fleet includes 272 Maersk-owned vessels which have an aggregate capacity of 1.7m TEU. In addition the fleet includes another 308 chartered vessels with a total capacity of 1.1m TEU as of September 2014. Thus bringing its total capacity to 2.8 million TEU.

Møller-Maersk is headquartered in Copenhagen, Denmark. Its revenues reached $35.85bn in the first nine months of 2014. Møller-Maersk employs 88,909 people in 135 countries. The company was founded in 1904 by Arnold Peter Møller.

Mediterranean Shipping Company (MSC)

Mediterranean Shipping Company is a shipping company headquartered in Geneva, Switzerland. MSC’s fleet comprising 471 container vessels has an intake capacity of 2.43m TEU. Its vessels operate worldwide visiting about 316 ports. It began operations in 1970,.

The MSC is a privately-owned shipping line. It is present in 150 countries and employs more than 24,000 personnel.

CMA CGM Group

France’s largest shipping company is the CMA CGM Group. Its 428 vessels strong fleet give it a total capacity of 1.55m TEU. The container ships traverse 170 shipping routes and routinely call at 400 sea ports.

In 1978 Compagnie Maritime d’Affretement (CMA), founded by Jacques Saadé, acquired Compagnie Generale Maritime (CGM), a state-owned company that was privatized in 1996. The result was the CMA CGM Group. This company operates in 150 countries and has a personnel strength of more than 18,000 people.

In Conclusion

Sea freight is a vital part of international logistics which services global trade. Its importance to world commerce continues to increase every year. As more and more economies open to the world market, and as technology and access to finance make poorer countries into manufacturing nations, volume of global trade will continue to rise, and so will the vital place of sea freight in trade and in the world generally.

REFERENCES

(1)          https://ourworldindata.org/international-trade

(2)          https://www.wto.org/english/res_e/statis_e/wts2017_e/WTO_Chapter_02_e.pdf

(3)          https://www.economist.com/economic-and-financial-indicators/2007/11/15/trade-logistics

(4)          https://en.wikipedia.org/wiki/International_trade

(5)          www.api.org/~/media/files/oil-and-natural-gas/tankers/tankers-lores.pdf

(6)        https://en.wikipedia.org/wiki/List_of_countries_by_oil_production

(7)        “Approximately how long does it take for a cargo ship to go from Europe to the USA?”. www.quora.com. Retrieved 2015-07-29

(8)        https://www.planete-energies.com/en/medias/close/transporting-oil-sea

(9)        https://www.ogj.com/articles/2018/03/iea-raises-global-oil-demand-estimate-for-2018.html

(10)      https://www.billiebox.co.uk/facts-about-shipping-containers

(11)      https://en.wikipedia.org/wiki/Freight_transport

(12)      http://www.portinfo.co.uk/portinformation/ourmaritimeblog/vessel-types-explained

(13)      http://www.portinfo.co.uk/portinformation/ourmaritimeblog/vessel-types-explained

(14)      https://www.humansatsea.com/2016/10/08/top-10-biggest-container-ships-in-the-world/

(15)      https://en.wikipedia.org/wiki/List_of_busiest_container_ports

(16)     https://www.chinacheckup.com/blogs/articles/china-shipping-ports

(17)      https://en.wikipedia.org/wiki/List_of_busiest_container_ports

(18)    https://en.wikipedia.org/wiki/World%27s_busiest_ports Government of Miami-Dade. 19 December 2013. Retrieved 11 September 2014.

(19)    https://www.vox.com/2016/4/25/11503152/shipping-routes-map

(20)    https://arcb.com/blog/major-shipping-routes-for-global-trade

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