Carriers are now building bigger ships to take advantage of economies of scale in fuel and crew costs.
Economies of scale is a microeconomic term and is used to explain the cost advantages that companies can take advantage of when expanding and growing their businesses. As companies grow their costs of production will lower as the fixed costs, those costs which stay the same regardless of number of items produced, are now spread out over more units of output. Generally, this means more profit and more revenue for companies that can take advantage of this.
Perhaps the biggest symbol of growing economies of scale in shipping is the CSCL Globe, a brand new container ship that boasts some truly gargantuan statistics. It is capable of carrying 19,100 twenty-foot shipping containers, is the largest ship in the world in terms of pure volume and it’s also 400 meters long and 59 meters wide, making it one of the biggest ships in the world in pure size. These numbers may seem useless without a frame of reference however, if you were to place the empire state building on its side, it would still only be a few metres longer than the CSCL Globe.
Ships like the CSCL Globe have meant that smaller shipping companies are progressively getting pushed out of the industry. These massive ships mean that smaller companies are unable to offer customers lower prices as their costs of running their ships and the relatively small amount of cargo they can carry means their profits will have to take a huge hit.
It’s not just a few companies that are taking advantage of economies of scale, the whole industry is moving towards these ‘megaships’. Hyundai Heavy Industries, the largest manufacturer of ships has said that since 2010, it has built 82 ships that can carry up to 10,000 twenty foot shipping containers, and only 5 ships capable of carrying 5,000 or less containers.
With the proliferation of these giant ships, the barriers to entry in the market have never been higher, companies now must have significant capital available to be able to purchase the requisite fuel and crew to operate these ships. While this does unfortunately mean that smaller companies are unable to get a foothold in the industry, these bigger ships are much better for the environment. They consume 50% less fuel per container moved, and they half the amount of insurance and staffing costs needed.
Despite the huge size of the CSCL Globe, its title of biggest ship in the world will not last long, Sam Chambers of SinoShip are expected to order a ship capable of carrying 20,000 units, and soon 24,000 unit ships will be available for order. The shipping industry will soon only have enough room for a handful of companies, with small ships a thing of the past.
Perhaps the biggest symbol of growing economies of scale in shipping is the CSCL Globe, a brand new container ship that boasts some truly gargantuan statistics. It is capable of carrying 19,100 twenty-foot shipping containers, is the largest ship in the world in terms of pure volume and it’s also 400 meters long and 59 meters wide, making it one of the biggest ships in the world in pure size. These numbers may seem useless without a frame of reference however, if you were to place the empire state building on its side, it would still only be a few metres longer than the CSCL Globe.
Ships like the CSCL Globe have meant that smaller shipping companies are progressively getting pushed out of the industry. These massive ships mean that smaller companies are unable to offer customers lower prices as their costs of running their ships and the relatively small amount of cargo they can carry means their profits will have to take a huge hit.
It’s not just a few companies that are taking advantage of economies of scale, the whole industry is moving towards these ‘megaships’. Hyundai Heavy Industries, the largest manufacturer of ships has said that since 2010, it has built 82 ships that can carry up to 10,000 twenty foot shipping containers, and only 5 ships capable of carrying 5,000 or less containers.
With the proliferation of these giant ships, the barriers to entry in the market have never been higher, companies now must have significant capital available to be able to purchase the requisite fuel and crew to operate these ships. While this does unfortunately mean that smaller companies are unable to get a foothold in the industry, these bigger ships are much better for the environment. They consume 50% less fuel per container moved, and they half the amount of insurance and staffing costs needed.
Despite the huge size of the CSCL Globe, its title of biggest ship in the world will not last long, Sam Chambers of SinoShip are expected to order a ship capable of carrying 20,000 units, and soon 24,000 unit ships will be available for order. The shipping industry will soon only have enough room for a handful of companies, with small ships a thing of the past.