Call container crisis what it is — market failure

Your efficiency ain’t my efficiency.

In fact, your efficiency might be the primary cause of my operation’s inefficiency.

That’s a reality being realized by farmers and containerized crop shippers as chronic backlogs develop at port, at terminals and elevators, and back on the farm as those who control container availability choose to ignore export-ready grain.

Related stories:

  • Container trade continues to stumble
  • Giant container ships get the blame for inefficient trade

Instead, they’d rather take no backhaul load at all and ship empty containers from the West Coast back to China as fast as possible.

“One decision by one player that sub-optimizes something has a massive ripple effect,” Grant Northey of Pulse Canada told me about the container crisis.

While west coast terminals and trans-loaders have become plugged with crops for which there are overseas buyers waiting, the shipping companies are taking unloaded containers from China and getting them back on board giant container ships and out of the harbour as quickly as possible.

The ship lines make more money that way, from huge premiums coming out of China. For them, getting a container to a loading facility, even one in the harbour, and allowing a small amount of time to get crops into that container, and then making sure it gets to its destination overseas even if that isn’t China, is inefficient.

This is a market failure.

The ship lines have almost total control of container supply, and the impact of their actions on their customers does not end up in any of their profitability calculations.

Right now, they’re like the railways if the railways weren’t subject to the Canada Transportation Act and other laws and regulations. As grain company managers and executives have told me numerous times over the years, when they complain about poor rail service and plugged elevators, they sometimes get told versions of “don’t worry, your crop will all get moved in the end.”

Imagine how the monopoly-like railways would be if they were free to run their systems without any thought to those reliant upon those systems.

That’s what’s happening today in container shipping.

Not only are the ship line “alliances,” of which there are three that dominate more than 80 percent of the global business, able to ignore their customers’ needs when it comes to container availability, they have also designed their fleets in a way that disadvantages many.

“The ship lines built ships that they thought were best for their own needs,” said Marc Levinson, the leading historian of the containerized freight industry.

“They didn’t really give much thought to the system.”

Why should you, when the cost is borne by somebody else and you just alter your charges to account for the costs?

That’s market failure.

As Northey pointed out to me, regulatory systems in the United States, China and the European Union are able to investigate and discipline some ship line actions, but Canada has fewer and weaker regulatory levers.

That needs to change. Ship companies shouldn’t be able to ignore the needs of container-dependant grain exporters when they are using public ports and regulated unloading facilities, as well as regulated railway systems.

Right now, the Americans, Europeans and Chinese are taking a critical look at the container ship companies.

Hapag-Lloyd, one of the three giants, outraged many in the agriculture exporting business when it informed exporters in October that it was suspending ag container exports from North America in favour of sending empty containers back to China.

Bob Sinner, president of the Specialty Soya and Grains Alliance, called the decision “devastating and shocking.”

While the other shipper syndicates didn’t make similar statements, they acted the same, Northey said.

In the U.S. this has brought action, with regulators currently looking at the situation.

It’s time Canada stepped into this void too. Ship lines rely upon North America’s few ports and scarce port facilities to operate their businesses. They’re just customers.

It’s time to make them recognize that they aren’t independent operators, but part of a value chain that requires overall efficiency for all the links, not just the one the shipowners have in their hands. And they don’t just get to yank on that chain whenever it’s most efficient for them to do so.

About the author

Markets at a glance

explore

Stories from our other publications