Global Shipping
The Benefits and Drawbacks of Shipping by Sea
Global shipping is a part of a massive supply chain that puts products into the hands of consumers. Though some goods can be moved long distances by air, 90 percent of traded goods are transported via sea. More than 11 billion tons of goods, including clothes, grains, cars, and oil, are carried around the world every year. The industry includes global networks of fleets, ports, tankers, and containers, which connect the world and allow countries, companies, and individuals to access goods produced far away from where they live.
Industry Overview
Significant Routes
While there are thousands of shipping routes that connect locations around the world, several of them are extremely important and highly trafficked. With more than 182,000 vessels passing through it each year, the English Channel, connecting the North Sea and the Atlantic Ocean, is the world’s busiest sea route. The Strait of Malacca sees 83,000 vessels each year, and around 40 percent of the world's trade passes through it.
In terms of importance, the Panama Canal is essential to connecting the Pacific and Atlantic Oceans. This artificial seaway reduces transit time by 8,000 miles or 67 days. Other major routes include the Amazon River, the St. Lawrence River, the Volga-Baltic, and the Danish Straits.
Top Countries & Companies
Some countries dominate global shipping in terms of carrying capacity. Greece ranks number one, with Greek cargo ships accounting for 364 million Deadweight Tons (DWT) of capacity, or roughly 17.8 percent of the world’s total capacity. Greece is also home to the largest private shipping empire, Angelicoussis Shipping Group.
Japan is second, with 233 million DWT equating to 11.4 percent of the world’s capacity. Japan is home to Ocean Network Express (ONE), which is ranked in the top ten of all companies in the industry. China follows closely in third, with 228 million DWT or about 11.2 percent of the world’s capacity. China also has the world’s largest seaport in Shanghai and is home to the world’s largest shipping company – China Ocean Shipping Company (COSCO).
Benefits of Global Shipping
Capacity & Fewer Product Restrictions
The biggest benefit of shipping by sea is that cargo ships have a large capacity, making them especially suited to oversized and heavy cargo or commodities such as oil, gases, and grains. Cargo containers are available in two sizes – 20-foot, with around 28,000kg of capacity, and 40-foot, with just over 26,000kg of capacity. Typically, cargo ships can carry 21,000 20-foot containers, which equates to 546 million kilograms of freight on each ship. In addition, product tankers can carry 70,000 to 1,345,000 barrels of gasoline, and between 310,000 to 550,000 barrels of crude oil.
In some cases, airfreight may be an alternative to sea freight. However, planes are limited in how much weight they can carry, and there are many product restrictions for air freight that makes it unsuitable for goods such as gases, flammables, magnetic substances, and more. These restrictions are not as limiting for sea freight, which makes it easier to ship items like electronics, chemicals, and other potentially hazardous or heavy products.
Low Transit Costs
Though the actual rate of shipping something by sea depends on the weight, value, and destination of the goods, shipping by sea is generally the most cost-effective way to transport goods over long distances. Typically, ocean freight costs between $2.00 - $4.00 per kilogram. At these rates, a 20-foot container would cost between $56,000 - $112,000, while a 40-foot container would cost between $52,000 - $104,000. Though that seems very expensive, the alternative is significantly more.
Airfreight, by comparison, averages around $2.50 - $8.00/kg. In general, this makes shipments of more than 500 kilograms too expensive for most products. For example, shipping a 900kg box from China to the USA would cost $1,500 by sea, but $8,000 or more by air.
That being said, air freight can still be used to transport delicate goods. In fact, 99 percent of pharmaceuticals are transported via air.
Globalization and Facilitation of Trade
Domestic and international economies greatly benefit from traded goods. Goods manufactured in other countries can usually be produced for much cheaper, which ultimately increases the discretionary income (income you have to spend after necessities are paid) of local consumers.
Trade is also highly specialized. If countries chose to produce all goods at home, this would lead to fewer economies of scale and ultimately higher consumer prices. Though there’s no doubt that buying local is better for the environment as it reduces transportation emissions, supports local jobs/companies, and mitigates the risk of foreign dependency, no country in recent decades has achieved economic success without being open to the rest of the world.
Throughout the world, nations that are rich in natural resources and/or produced goods can transport these goods to other countries. This process can often add value that drives prosperity and enables development. In today’s diverse and distributed economy, it is simply not possible or practical to solely produce all goods within a single country and maintain economic wealth. The world is dependent on trade to spread this wealth and further develop nations, and global shipping plays a massive role in enabling this movement of goods.
Drawbacks of Global Shipping
Transit Time & Hazards
Transporting goods throughout the world by water takes a considerable amount of time. Many factors, including distance, route, and season, can all affect the transit time. On average, sea shipping can take 20-45 days or more. Looking at average transit times in 2021, shipping a container between China and the USA can take anywhere between 35 days to as many as 80 days. On this route, traveling via the Suez Canal takes 41 days, whereas the route through the Panama Canal, which is more expensive, is only 35 days.
In comparison, express air can take 1-3 days, while regular air can take 5-10 days, making it significantly faster. However, when considering the limitations that air freight has, and the increased cost, accepting the longer transit time of sea freight is the most reasonable choice for many different goods.
Another downside of sea freight is the potential hazards that vessels face. Sea cargo is more likely to get damaged or destroyed in transit as it takes much longer and vessels are more likely to move on the route. Cargo has also been known to fall off ships. However, out of the 120 million containers shipped each year, only around 550 of them are lost at sea. Piracy is a potential threat to losing cargo, however, these dangers are primarily only present in the Horn of Africa, Gulf of Guinea, and the Malacca Straits.
Pandemic Supply Chain Disruptions
The COVID-19 pandemic has exposed the existing challenges of the global transportation and logistics industries and has shown that any disruptions can present long-term complications. In the first six months of 2020, more than 1,000 container ship voyages were canceled. Due to cancellations, the demand for containers decreased, which resulted in an insufficient supply to meet the eventual increase in consumer demand experienced during the latter half of 2020. The container shortage resulted in the industry operating at maximum capacity, further increasing turnaround times in ports and creating a severe bottleneck.
These supply chain blockages have hindered economic recovery and have ultimately led to increased consumer prices, in part due to the increase in freight rates. Small developing island countries are expected to face the largest increase at 7.5 percent, while the least developed countries will see a 2.2 percent increase. For the developed world, prices are expected to increase by 1.5 percent.
Industry Emissions and Environmental Damage
Global shipping continues to be a large contributor to global Greenhouse Gas (GHG) emissions, and these emissions are only set to increase as trade and the transport of goods continues to grow. The industry currently emits around 940 million tonnes of CO2 annually, which accounts for 2.5 percent of total global GHG emissions. According to the IMO, these emissions, under regular operating conditions, could increase between 50 percent and 250 percent by 2050.
Most emissions from these ships are generated through the burning of fuel. Each container ship requires around 63,000 gallons of marine fuel per day when traveling at speeds between 23-28 mph. If speeds were decreased by 10 percent, emissions from fuel could drop by 30 percent. Though this solution would cause the need for more ships to offset the longer sailing times, the environmental savings would be significant.
One of the largest commodities traded oversea is crude oil, which typically makes up 25 percent of all maritime trade. Shipping oil overseas has introduced the risk of oil spills, which are extremely harmful to ocean ecosystems, neighboring nations who are likely to experience polluted beaches, and the fishing industry. On top of minor spills that happen when fueling vessels, oil tankers add 3.5 to 6 million metric tons of oil to oceans each year.
Finally, the noise of large ships can disrupt marine life, and animals can be injured or killed by ships and their engines.
A Critical Part of Everyday Life
Sea freight has proven to be the most cost-effective and efficient way to transport large volumes of goods over long distances. However, it doesn’t come without drawbacks. Industry emissions are cause for concern as the world moves toward greener technologies, and the resiliency of the industry was put to the test due to the pandemic, which shined a bright light on its existing challenges and lack of resiliency.
However, global shipping has transformed the way that economies and countries operate. The introduction of sea freight has given countries a chance to export their excess resources and take advantage of others’ competitive advantages. Overall, this industry provides copious amounts of value to people and countries right around the world.
