Who Benefits Most from Gigantism in Shipping?

I want to commend to your attention this primer on container shipping and global logistics at Springer Link by professor of maritime economics Hercules E. Haralambides. It is full of worthy observations including:

It is doubtful if the economies of scale in shipping are passed on to the final consumer, as required by the block exception of consortia and alliances from the provisions of competition law in Europe.


Economies of scale in shipping, distribution and logistical systems have totally changed our lives to the better in the last quarter of a century. But transshipment, warehousing and distribution don’t come cheap, as our enthusiasm with logistics often assumes. It is good to know this and thus make sure that the costs (internal and external) of logistics operations are paid in full, including the costs of using public infrastructure. The latter because (to a large extent) infrastructure is no longer a public good and thus the user pays principle should apply.

One might counter-argue on this that, in this way, higher transport and logistics costs would be passed on to the final consumer, as it usually happens with privatization. This may or may not be so, depending on how competitive transport and logistics markets are.

The author asserts and provides evidence that, for example, economies of scale flatten at around 4,500 TEU capacity and that there may actually be an inverse relationship between economies of scale in liner shipping and economies of scale in port facilities.

The question that led me to this piece was who captures the economic surplus from the use of container ships? It probably isn’t consumers. Ultimately, the piece did not answer the question for me and I’m still wondering. I suspect that most of the surplus is captured by the owners of large shipping companies and their banks and companies who ship considerable tonnage of high value merchandise long distances, e.g. Apple.

While I agree that we should be modernizing our infrastructure, I think it’s completely reasonable to ask to what end? And who should pay? The primary beneficiaries should pay and that is not now the case. Federal spending will not meet that test as long as we’re borrowing 40% of the federal budget and payroll taxes (which are regressive as presently constituted) make up another 30%.

11 comments… add one
  • TastyBits Link

    My guess is that it benefits consumers. It allows more products and more variety of products. This would apply to components and finished goods.

    (A rich guy’s new Red Barchetta would cost a lot more because of shipping costs from Germany. So, is he being subsidized?)

    Federal borrowing is another matter. The primary beneficiary is the bond market, but in addition to financialization, borrowers benefit from the availability of money to finance purchases.

    The primary cause of federal borrowing is de-industrialization.

  • steve Link

    Most? The shipping companies or they wouldn’t do it. I suspect it also benefits consumers but dont really know. Would need to do cost benefits on larger vs smaller container ships. The costs of infrastructure, including maintenance and accidents will be borne by the consumer. Maybe someone has done the analysis but I dont know if consumers benefit enough to make up for the costs. My gut says yes but maybe it’s like stadiums where it usually costs the taxpayer more than they gain.


  • Andy Link
  • In the past I have linked to studies which found that very little of the economic surplus produced by, I think, “just in time” inventories were realized by end consumers. I suspect it’s the same with containerization. I’ll dig into my archives (about 21,000 posts at this point) to see if I can find them.

  • TastyBits Link

    I am not sure how it does not benefit the consumer. It may benefit the owners/investors, but since most of the products are not manufactured domestically, they would not be available without overseas shipping.

    As everybody has just learned, JIT is a “fair weather” strategy, but during “fair weather”, it reduces the investment in warehousing materials.

    Because the US has de-industrialized, most products CANNOT be manufactured in the US, and the only to obtain them is from overseas. Shipping is most economical when done with large vessels – barges, trains, ships.

    This is not risk-free. Barges break loose, trains derail, ships run into things.

    So, the risk-free solution is to manufacture goods overseas and deliver them one per ship. To combat AGW, they could be sailing ships.

  • Drew Link

    Hey Steve

    Has Purdue folded yet? Thought I’d ask you, what with you being such a basketball guru and such.

  • bob sykes Link

    Don’t disrespect my Boilermakers. They may be bottom feeders in football, but they are kings in basketball, sorta the flip side of tOSU and MeatChicken.

    I remember the first introduction of containers and their specialized ships, ports, railroads, and trucks. That innovation resulted in a huge reduction in shipping costs, and a huge reduction in shipping times. The longshoremen went batshit crazy for a while. Loss of pilferage, featherbedding…

    In the meantime, the US has fallen very far behind both Europe and Asia, which is consistent we our overall economic degeneration. While the MS Dali is fully the size of a Nimitz class aircraft carrier, it is substantially smaller than the modern ultracarriers, none of which can enter any American port or the Panama Canal.

    Economies of scale must still be working, and we may see yet another evolution of hypercarrier. The main driving for is probably reduced crew size vs container loadout, but there may be fuel savings per container, too. Note that larger ships have lower surface area to volume rations, and therefore less drag.

    Americans, both corporate and individual, will see none of the benefits, because federal, state, and local politicians will prevent the needed changes to our ports.

    Shippers, like the once-upon-a-time US auto makers, hope to capture all the cost reductions as profit, but competition among shippers means that some of the savings will leak out to consumers, inadvertantly, of course.

    Just-in-time parts delivery did reduce auto manufacturing costs, and potentially auto prices, but federal and state regulations have eaten up the savings and driven up consumer prices.

    China’s newest automated container port, which has been optimized by AI running on 5G, can unload a ship like the Dali in about an hour, a process that requires a day or two at our obsolete ports.

    You might note that the various environmental and affirmative action requirements attached the the semiconductor chip fab subsidies has led TSMC to cancel one of fabs in (NM?, AZ?), and transfer it to Japan, and the proposed Intel fab outside Columbus is on hold, and it might be cancelled. The same sort of regulatory nonsense has put New York’s wind power plans on hold.

    PS Is your local election settled yet? Have the Powers That Be found enough “lost” ballots to install their minion?

  • steve Link

    Nope. After losing in the first round last year as a #1 seed, the second time it has ever happened, they pulled out a win this time. So the kings of basketball who have never won the NCAA will go to the Final 4 for the 3rd time ever, which as 1 seed was expected.

    However, when it comes to guru credentials how about picking out NC State as the one low seed that would keep going?


  • Drew Link

    Nice try, steve. Not buying. As always, you are flat damned wrong and contort the argument to avoid the issue.

    Esteem issues……

    Meanwhile, this is a doozy.

    “The shipping companies or they wouldn’t do it.”

    And the problem is? Maybe we should have a steel mill in everyone’s back yard. Or organize commercial air flight around Cessna’s. Or how about “tiny trains,” transporting 4 people at a time?

  • And the problem is?

    The question is who pays for port modernization? IMO the most efficient strategy is that whoever benefits the most from large container ships should pay for the modernization. The candidates are: mass exporters (China, Japan, South Korea, Germany), shipping companies, their banks, domestic transport companies, consumers, retailers.

    I think the available evidence suggests that mass exporters and shipping companies are the primary beneficiaries of containerization. If that is the case then Pigouvian taxes in the form of tariffs or fees should be imposed. The present strategy (borrow money appropriated by the Congress) only makes sense if the primary beneficiaries are consumers.

    BTW I note that no one has observed that modern port operations are trending towards “lights out” operations. That rules out port workers as beneficiaries.

  • TastyBits Link

    I believe you mean infrastructure upgrades paid for by the government – local, state, or federal. That is a different subject. That answer would be the politicians and their brother-in-laws.

    There may be a national security factor to having modern ports. Otherwise, I agree with @steve about it being like stadiums.

    “Pass along the savings” is stupid and childish. When the CPI decreases, who asks for a pay decrease to help the consumer.

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