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OM in the News: The Shipping Revolution

May 24, 2012

Fortune (May 21, 2012) carries a fascinating analysis of the global shipping industry that fits nicely into a discussion of logistics in Chapter 11. We find in the article that nearly 90% of all goods traded across borders travel at some point by sea.The fastest growing routes are between ports in Asia, accounting for 43% of all maritime trade., with the most heavily trafficked route being between China and the US West Coast. Unfortunately for the trade deficit, 4 times as many goods travel to the US than make the return trip. New, faster routes are opening with the Northeast and Northwest Passages ice-free every summer since 2008.

The real revolution has been in the ships themselves. Back in  the 1956-1970 era, cargo vessels were 443 feet long and hauled 500 twenty-foot “equivalent container units” (called TEUs). Next year, Maersk, the Danish shipping giant, will launch its EEE-Class, the largest cargo ship in history. Length: 1,312 feet. capacity: 18,000 TEUs. Cost: $190 million/ship.

As ships have gotten bigger, economies of scale have improved, and the cost of shipping has dropped dramatically. Here are some typical ocean-crossing costs: TV, $10; DVD player, $1.50; vacuum cleaner, $1; barrel of oil, 80 cents; 6-pack of beer, 6 cents; 100 pounds of coffee, $6.80. (Oil, grain, and iron are more expensive because ships make the return trip empty.)

And the containers themselves are no longer just a steel box. They have doubled to 40 feet, and are often fitted with RFID chips to let ports and owners keep track of them. Some  containers are built to be folded up when empty. Others can float if lost at sea and  come with GPS satellites to make them easier to find in the ocean.

Discussion questions:

1. Why are the ships getting bigger and bigger?

2.  What are the dangers facing the shipping industry?

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