Review of Previous Studies On Container Shipping: Infrastructure, Projections and Constraints

Review of Previous Studies on Container Shipping:
Infrastructure, Projections and Constraints

Towards a Global Forecast of Container Flows
Container Model and Analysis:
Longer Term Analysis fo Infrastructure Demands and Risks
Task 1: Review of previous studies on container shipping with a focus on infrastructure and
projections
Task 6: Review previous studies to identify the current state of knowledge about port constraints
and expansion possibilities and costs
Draft Report
for Review
December 31, 2007
D:\1111\ACE07\Docs\123107\ContainerRevLiterature 1-1v4-1pdf.wpd
TABLE OF CONTENTS
1.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1
Trade and Trends in Container Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2
Constraints and Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.
Issues Confronting Container Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1
Market Structure of Ocean Carriers and Firm Strategy: Impact of Market Power,
Conferences, Mergers, Acquisitions and Alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2
Economies of Size of Ocean Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3
Changes in Container Vessel Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.
Port Constraints and Projects Impacting Container Shipping . . . . . . . . . . . . . . . . . . . . . 15
4.1
Port Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2
Major Projects Impacting Container Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.
Previous Studies on Specific Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1
Infrastructure Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.1
Port Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.2
Port Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1.3
Modal Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1.4
Economies of Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1.5
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2
Interport Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.3
Projections and Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4
Spatial Optimization and Simulation Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
List of Tables
Table 2.1. Growth Rates of Four Major Service Types - Ocean Freight . . . . . . . . . . . . . . . . . . . 3
Table 2.2. U.S. Container Trade by Region, 2000 to 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2.3. Annual Growth Rates for Asia-North American TEU Trade . . . . . . . . . . . . . . . . . . . 4
Table 2.4. Top 10 U.S. Trade Commodities Transported by Containership, 2000 and 2020
(Millions of Metric Tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3.1.1 Top 10 Global Container Fleet Operators and Total for Top 50 . . . . . . . . . . . . . . . 10
Table 3.2.1 Scale Increases in Vessel Size: Evolution of the World Cellular Fleet,
1991-2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 3.3.1 Containership Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 3.3.2. Design Draft Characteristics of Containership Fleet, 2001 . . . . . . . . . . . . . . . . . . 14
Table 3.3.3. Prospective (Future) Maximum Vessel Characteristics for Panama and Suez
Canals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 5.1.1. Total Costs per day for Operating Cost Categories, by TEU . . . . . . . . . . . . . . . . . 27
Table 5.1.2. Allocation of Ship Operating Costs at Sea and In Port by TEU . . . . . . . . . . . . . . . 27
Table 5.3.1 Growth Rates of Four Major Service Types - Ocean Freight . . . . . . . . . . . . . . . . . 33
Table 5.3.2. Containerized Trade Flows to North America, by Export Region (000 TEUs) . . . 33
List of Figures
Figure 3.2.1. Container Vessel Deliveries: Average TEU/Vessel . . . . . . . . . . . . . . . . . . . . . . . 13
Review of Previous Studies on Container Shipping:

Infrastructure, Projections and Constraints
1.
Introduction
The Institute for Water Resourcess (IWR) Navigation Economic Technologies (NETS)
Research program has developed a global spatial equilibrium model for the forecasting of
grains.1 This analytical approach to forecasting projects supplies and demand by region and
transfers excess supplies to the excess demand regions by the least cost route. This approach
also can be used to evaluate comparative statics to assess how changes in infrastructure impacts
the equilibrium shipments during the projection period.
The objective of this research is to evaluate the applicability of this approach to the
forecasting of container cargoes. This paper addresses two tasks as part of a larger overview of
the container shipping industry.2 In particular, it seeks to:
Task 1:
Summarize results of a kick-off meeting and presents results of a literature review

of previous studies on container shipping with a focus on infrastructure and
projections.
Task 6:
Review previous studies to identify the current state of knowledge about port
constraints and expansion possibilities and costs.
This paper is organized as follows. Section 2 provides some relevant background on container
shipping. Section 3 provides a discussion of some of the major issues confronting the container
This is available at Wilson, DeVuyst, Taylor, Dahl, and Koo (2006) and summarized in Wilson,
DeVuyst, Taylor, Dahl and Koo, 2007. Additional papers from that study include are in Wilson, Koo, Taylor and
Dahl (2008a and 2008b) and several articles under review including DeVuyst, Wilson and Dahl (2008) and Wilson,
Dahl, Taylor and Koo (2008) which are available from the authors.
2
Other tasks include the following, and are available in accompanying reports: Task 2 Describes historical
movements in world container trade; Task 3 Analyzes historical movements in US container markets including an
econometric analysis of container demands; Task 4 Rail rate analysis of container shipments; Task 5 Ocean rate
analysis of container shipments; Task 6 is included in this report; and Task 7 An evaluation of alternatives for spatial
modeling of container shipments.
Reports on each of these topics are available from the authors and IWR and are titled:
Report 1:
Review of Previous Studies on Container Shipping: Infrastructure, Projections and
Constraints
Report 2:
Analysis of Container Flows: World Trade, US Waterborne Commerce and Rail
Shipments In North American Markets
Report 3:
Container Demand In North American Markets: A Cross-Sectional Spatial Autocorrelation
Analysis
Report 4:
Container Shipping: Rail and Ocean Shipping Rates
Report 5:
Optimization Models of Container Shipments in North America: Spatial
Competition and Projections (Methodology)
shipping industry. Section 4 summarizes some of the major projects impacting container
shipping. Section 5 provides and overview of the previous studies. There has been a large
number of studies on container shipping and this section provides an overview of the breadth of
the literature. Section 6 is a summary of the major issues these from these studies. It also
provides a detailed discussion on some of the primary issues involved in developing a spatial
optimization model of container shipping. Finally, the appendix contains more detailed
descriptions of some of the specific studies that are relevant to this broader research program.
2.
Background
2.1 Trade and Trends in Container Shipping: The container shipping industry is one of the
fastest growing segments of the domestic and international logistical systems. International
container volumes have increased from 47 million TEU (Twenty Foot Equivalent Units) to over
140 million TEU in the period from 1996 to 2008 (projected). This implies an annual average
growth rate of nearly 10% per year and all but three years have had double digit increases. Most
projections are for this to continue. Further, container shipping has also grown faster than any
other category of shipping in the past 10 years, and is projected to grow at 3.4%/year from 20102015 (Table 2.1), in contrast to 1.5% growth for dry bulk and 1.4% growth for tankers (Global
Insight).3
North America is the third largest importing market for containers (at 21 million TEU)
following Asia (40 million TEU) and Europe (30 million TEU). The TransPacific trade routes
have the highest trade volumes (22 million TEU at 10% average growth rate), followed by
FarEast to Europe (17 million TEU at 12% average growth rate) and distantly the TransAtlantic
route (6 million TEU at 5% growth) in 2007 and then domestic growth rates.
North America is also a large container exporter. Over one-half of its exports go to Asia
and this trend has been forecast to continue (Drewry). However, North America imports more
containers than it exports and forecasts for growth in U.S. container trade are greater for imports
than exports.
A very detailed and extensive presentation of changes in demands and trade flows for containers is
contained in Wilson and Benson 2008b.
Table 2.1. Growth Rates of Four Major Service Types - Ocean Freight
2000-05
2005-10
2010-15
2015-22
Dry Bulk
3.6%
2.6%
1.5%
1.2%
Tanker
1.2%
1.8%
1.4%
0.7%
General
Cargo/Neo Bulk
3.1%
3.6%
2.8%
2.2%
6.1%
4.5%
3.4%
2.8%
Container
Source: Global Insight
Table 2.2. U.S. Container Trade by Region, 2000 to 2050

2000
2010
2020
2050
Volume of Trade (Million Metric Tons)

Asia
77.9
127.6
215.9
388.7
Europe
32.0
44.7
62.0
80.0
South America
11.9
17.6
26.5
40.1
North America
8.7
13.2
20.8
32.5
Australia/New Zealand
3.6
6.9
9.1
Middle East
2.7
3.5
4.8
6.2
Africa
1.9
2.7
3.8
5.1
Other
0.5
0.7
1.2
1.8
Total
138.9
214.9
341.8
563.3
Asia
56%
59%
63%
69%
Europe
23%
21%
18%
14%
South America
9%
8%
8%
7%
North America
6%
6%
6%
6%
Australia/New Zealand
2%
2%
2%
2%
Middle East
2%
2%
2%
1%
Africa
2%
1%
1%
1%
0%
0%
0%
0%
Shares (%)
Other
Source: DRI-WEFA
Table 2.3. Annual Growth Rates for Asia-North American TEU Trade
2004
2005
2006
2007
2008
Asia to North America
13.7%
12.6%
10.9%
8.3%
4.6%
North American to Asia

6.1%
5.1%
4.7%
4.1%
3.8%
The top five export commodities shipped by containerships are waste paper, synthetic
resins, paper products, animal feed and refrigerated meat/dairy/fish (Hackett, Table 2.4). Of
these, all but animal feeds utilize containers on 68% or more of shipments.4 5 For imports, the top
five commodities are other manufacturing, metal products, furniture, beverages and wearing
apparel, all of which utilize containers on more than 60% of volume shipped. Imports tend to be
higher valued commodities, while exports generally are lesser valued commodities.
The Tioga Group discusses structural changes occurring in the shipping industry and
suggest the linkage between the value of goods and transportation is changing (examples are Fed
Ex and growth in high value electronics). The service economy is changing linkages between
economics, trade and transportation. Transaction costs are declining, but this is countered by
increased costs for security. The U.S. trade balance is increasing because much of the trade is
one way leading to specialization at ports and a buildup of empty containers in the U.S.
The shift of the Asian manufacturing center toward India that has been forecast by others
to occur and the subsequent shift in vessels movements from Asia to the West Coast of the U.S.
via the Pacific to India via Suez Canal to East Coast of the U.S., has not occurred (Tioga Group).
India appears more focused on a service economy. They indicate this is due to political,
financial, and infrastructure problems in India and strong competition from Brazil, Russia, China
and other Asian countries for manufacturing.
Another important trend is the growth in Mexican trade to the U.S. as companies shift
production from Asia to Mexico for faster delivery, greater flexibility and immunity from
seaport congestion or labor shutdowns. For logistics, they indicate the trend in outsourcing will
lengthen supply chains and raise the share of total cost devoted to logistics. Customers will
increasingly focus on logistical costs as potential area of cost reductions and be more likely to
switch carriers, ports, or routes for better, faster, cheaper transportation.
Transportation and logistics will become more commoditized. There is a trend toward
increased time definite deliveries (narrower window, less tolerance for variability). This is
important for efforts to influence modal choice away from trucking toward maritime and rail.
Delays at Panama Canal have reduced performance of all-water container service to east coast
from Asia. In fact, this is one of the major reasons that was motivating the Panama Canal
expansion, as well as its reservation system which is crucial to pricing and service.
4
Wilson and Benson 2008b provide a detailed and extensive presentation of the containerization process.
In fact, these is even a trend for grain exports which have been traditionally shipped in bulk, to have an
increase in containerized shipments. Mongelluzzo (2007) indicated a growth in container shipments of grain. He
indicated specifically that grain exports in container has increased due to: 1) higher ocean rates on bulk
commodities; 2) faster payment terms due to tighter shipping schedules; 3) flexibility allowing buyers to buy in
smaller lots; and 4) the increased DDG shipments due to ethanol growth. Currently, he cites that container
shipments of grain have increased by about 14% and are growing much faster than the export market as a whole,
and, though container shipments are very popular to Asia, grain shipments by containers are also occurring in
numerous other ports (Pacific, as well as East and Gulf coast ports).
Table 2.4. Top 10 U.S. Trade Commodities Transported by Containership, 2000 and
2020 (Millions of Metric Tons)
Export Commodities
MMT
% Transported by containership
2000
2020
2000
2020
Waste Paper
6.14
12.08
96
97
Synthetic Resins
5.43
9.10
77
80
Paper, Paperboard, and Products
4.32
8.38
70
74
Animal Feed
3.59
7.69
32
35
Refrigerated Meat/Dairy/Fish
3.18
7.12
68
74
Misc.
2.46
9.02
78
81
Refrigerated Produce
2.28
7.99
91
92
Organic Chemicals
2.04
3.09
13
14
Pulp
1.99
3.32
42
46
Cork and Wood
1.91
2.04
15
20
Import Commodities
MMT
% Transported by containership
2000
2020
2000
2020
Other Manufacturing, nec.
5.17
19.91
95
96
Metal Products
4.11
11.41
60
64
Furniture and Fixtures
3.98
16.13
97
98
Beverages
3.52
6.11
93
93
Wearing Apparel
3.40
13.70
82
82
Parts of Motor Vehicles
3.15
7.57
91
91
Non-Metallic Products, nec.
3.03
7.69
10
10
Other Food
2.99
6.07
78
79
Refrigerated Produce
2.79
9.68
46
44
Iron and Steel
2.60
3.84
Source: Hackett (DRI-WEFA).

Wilbur Smith Associates and Transystems identify several trends that are impacting
container movements. First, they indicate the trend for empty containers to be returned to PAW
ports for return to Asia are changing. Some of these empty containers are being shipped to
Atlantic ports due to high costs of U.S. rail service and network rationalization by Ocean
shippers. Some of the empty containers are also being shipped to San Pedro Bay ports (Los
Angeles and Long Beach), due to increasing container ship size which make it more efficient to
make fewer port calls. Panama Canal will open opportunity to offload loaded containers at West
Coast Ports, and load empty containers at Atlantic ports.
6
A major trend impacting container shipping is the increasing hinterland rail cost for
shipment within U.S. and network rationalization by major ocean shippers. As exmaple, Maersk
Lines is evaluating round trip economics of their networks. The combined effect is causing
Maersk to consider reducing inland delivery points and ports of call for their networks.
With focus on round trip economics and growing trade imbalance, the return destination
of containers is a concern. Diversion of containers to back hauls adds cost due to cleaning
required before reuse, loss of time before reuse, etc.
Within the United States major changes are occurring in logistics, manufacturing, etc. In
addition, major changes and challenges for infrastructure are occurring throughout the system.
These include receiving ports, dredging needs and port infrastructure including the complex
system of inter-modal transfer, as well as infrastructure and equipment needs for domestic
shipping and receiving. This industry is continuing to evolve and will challenge infrastructure
and logistical planners. Some of the interesting and important developments will be 1) impacts
of larger container ships; 2) impacts of recent and proposed projects on spatial flows; 3 ) market
power and concentration; 4) coordination of the total logistical movements; 5) congestion; 6)
hub-port and short-sea concepts.
2.2 Constraints and Productivity Within the United States, several of the major modes and
port areas are experiencing capacity constraints. These are being caused by increased demand as
well as the impact of increased fuel costs, particularly for trucking. Further, railroads were
rationalizing to overcome excess capacity, which since 2000 has largely evaporated and railroads
are having to deal with demands for increased system capacity. Thus, rail system has shifted
from an oversupply to an undersupply condition in the span of less than 6 years.
Ports are also confronting a number of operational barriers. The Tioga group indicated
that: 1) ports will operate closer to capacity and more subject to disruptions; 2) security will
increase costs and constrain capacity; 3) port highway connections will remain tight; 4) terminals
will be more costly and take longer to develop; and 5) the concept of an efficient marine terminal
will spread. Other trends will be shorter port terminal leases, trends toward development of
ports by carriers or joint ventures, port consolidation and cooperation. Load centering involves
few coastal load centers with truck, rail or vessel feeders to smaller ports and is predominant in
Europe and Asia where feeder services are well established. This has not occurred in the U.S.
because of capacity concerns at the largest ports and expansion in secondary markets.
Container terminal productivity in the United States are comparable to Asian and
European ports in throughput and cost per TEU, while higher in TEU/acre as U.S. ports
generally have more area. Most Asian terminals have no rail infrastructure and Asian volumes
inflated by transhipment volumes.
U.S. ports are making operational refinements to increase productivity (Increased gate
hours, improved rail networks, new terminal and gate management systems, appointment
systems and virtual container yards to spread out peak periods and facilitate off-port container
7
interchange and use).

3.
Major Issues Confronting Container Shipping
There are many issues confronting the container shipping industry. While not exhaustive, this
section briefly discusses some of the major issues. These are the pursuit of economies of size
which are driving ocean shippers to move to larger and larger container vessels in order to
reduce costs. As ship sizes increase, characteristics of ships change which puts demands on
ports requiring larger drafts, berths, crane capacity, etc. Another issue is the market/firm
structure for ocean shipping. Since ocean shipping lines own both the vessels and containers,
they are the dominant decision maker in the ocean container industry. Thus, firm structure,
conferences, alliances, mergers have important impacts on the ocean shipping industry.
3.1. Market Structure of Ocean Carriers and Firm Strategy: Impacts of Market Power,
Conferences, Mergers, Acquisitions and Alliances.
The market structure of the ocean shipping industry is important as shipping lines
typically own both the container vessels and the containers. Ocean carriers are also in many
cases integrating back into operations and ownership of port facilities. Because of this, ocean
carriers are important decision makers for container service and flows. In turn, the market
structure, use of conference systems, mergers and acquisitions and alliances among ocean
carriers have further impacts on the container market.
Conferences rose out of the need by ocean carriers to respond to competition among
carriers in setting ocean rates that resulted in losses for carriers. The conferences system are
alliances between carriers which set rates for specific routes (Notteboom). As ocean carriers
expand capacities of containerships, the Conference system is continuing to be under pressure.
An alliance (Trans Atlantic Conference Agreement) tried to extend the reach of conferences to
include inland shipping at fixed rates, however, the European Commission decided that they
would not allow bans on agreements enjoyed by maritime conferences to be extended to inland
shipments (Notteboom). The Tioga Group predicts that conferences will be of little significance
in 10 years and firms will focus on consolidation as a means to insulate themselves from
competition. They argue that the industry is moving to a two tiered market structure dominated
by global container carriers (serving all ports and services) and trade-specific carriers.
The ocean carrier industry is becoming highly concentrated. Most of the high capacity
containers are owned by few firms, employed in high trade routes, and by firms with multi-trade
strategic alliances (Notteboom, p 90). Notteboom evaluated slot capacity concentration
measures for selected years from 1980 to 2003, a period where total slot capacity increased from
435,000 to 5,074,377. He indicates shares for the top 5 firms increased from 44% to 48% and
for the top ten firms increased from 69% to 70%.
AXSLiners recent quarterly report for the top 50 container fleet operators shows a high
degree of concentration. The top 50 operators hold more than 10.6 million TEUs of capacity and
8
91.1% of total liner TEU trade (Table 3.1.1). Ship capacity in TEUs is 48% owned and 52%
chartered. The top 50 fleet operators have 4.9 million TEUs of capacity on order composed of
840 ships. The increased capacity on order represents 47% of TEU capacity of the top 50 fleet
operators (Journal of Commerce, 2007).
The Mercator Transport Group forecast a continued increase in consolidation in the
ocean shipping container industry. They forecast that the current structure where 5 alliances
handle 70% of capacity will increase in concentration toward 6-8 alliances handling 95% of
container capacity.
Brooks analyzed the container industry from a market structure and firm strategy
perspective. She utilizes a framework that looks at five competitive forces: 1) the entry of new
competitors, 2) the threat of substitutes, 3) the bargaining power of buyers, 4) the bargaining
power of suppliers, and 5) rivalry among competitors (Porter, 1980) and discusses each of these
in context of the ocean container industry in the late 80's early 1990s. She suggested sources of
firm competitive advantages focus on: 1) Cost containment and asset utilization, 2) Services, 3)
Agency Networks, 4) Access to capital, and 5) Vertical integration into the Input supply.
Further, sources of competitive disadvantages are: 1)Loss of market identity and 2) service
homogeneity. She also discusses strategies to exploit competitive advantage which include: 1)
Cost Leadership, 2) Focus Strategies, 3) Service Differentiation, 4) Sustaining Competitive
Advantage.
Table 3.1.1 Top 10 Global Container Fleet Operators and Total for Top 50
Total
Operator
Market
Share
TEU
Owned
Ships
TEU
Chartered
Ships
TEU
Orderbook
Ships
TEU
Ships
% of
existing
(TEUs)
APM-Maersk Line
16.1%
1,874,502
524
975,054
184
899,448
340
469,712
92
25.1%
Mediteranean Shipping Co.
10.5%
1,217,013
370
691,334
212
525,679
158
626,912
60
51.5%
CMA CGM Group
7.4%
864,669
360
267,921
87
596,748
273
541,191
71
62.6%
Evergreen Line
5.3%
618,458
175
376,331
107
242,127
68
16,537
2.7%
Hapag-Lloyd
4.2%
487,283
139
247,831
60
239,452
79
105,000
12
21.5%
China Shipping
3.8%
437,183
141
251,192
87
185,991
54
244,782
39
56.0%
Cosco
3.6%
420,410
139
222,437
93
197,973
46
332,097
44
79.0%
APL
3.4%
400,865
122
139,690
38
261,175
84
263,806
41
65.8%
NYK Line
3.2%
375,949
125
229,333
48
146,616
77
235,755
44
62.7%
OOCL
2.9%
343,228
81
195,759
34
147,469
47
143,366
23
41.8%
91.1%
10,310,241
3,936
5,134,563
1,652
5,475,678
2,284
4,935,575
839
46.5%
Total (Top 50)
Source: AXS-Alphaliner, as of December 3, 2007 in Journal of Commerce, 2007.
10
3.2 Economies of Size of Ocean Shipping

Container shipping lines enjoyed profitability during the 1980s, but underperformed
compared to other industries in the 1990s. The weaker performance is related to their capitalintensive operation and the high risks associated with revenues (Notteboom). These factors
result in shipping lines becoming less capable at setting and maintaining rates and shipping lines
become rate takers, thus the major focus of shipping lines is on reducing costs.
The effects of the shipping lines push for scale efficiencies to reduce costs on
composition of container fleet is shown in Table 3.2.1
Table 3.2.1 Scale Increases in Vessel Size: Evolution of the World Cellular Fleet, 19912006.
TEU
> 5000
1991
Share
1996
Share
2001
Share
2006*
Share
0%
30648
1%
621855
13%
2355033
30%
4000-5000
140032
8%
428427
14%
766048
16%
1339978
17%
3000-4000
325906
18%
612377
21%
814713
17%
892463
11%
2000-3000
538766
29%
673074
23%
1006006
21%
1391216
18%
1500-2000
238495
13%
367853
12%
604713
12%
719631
9%
1000-1500
329578
18%
480270
16%
567952
12%
596047
8%
500-1000
191733
10%
269339
9%
393744
8%
438249
6%
100-500
92417
5%
117187
4%
134472
3%
114976
2%
Total
1856927
2979177
4907503
7847593
Source: BRS Alphaliner Fleet Report, 2003

*Projection for 2006 as compiled with existing fleet and order book as of June 15, 2003.
** Volume for Year are listed as TEU capacity.
From 1991 to 2006, the total capacity of the world cellular fleet grew from 1.8 million
TEUs to 7.8 million TEUs. Thus, the container fleet increased in capacity by more than 4 times
over that period. In contrast, the proportion of the fleet allocated to TEU groups less than 3000
TEU declined from period to period. For example, ships in the 2000-3000 TEU group fell from
29% in 1991 to 23% in 1996, 21% in 2001 and 18% in 2006. This share reduction occurred as
TEU capacity in the 2000-3000 TEU group increased from year to year, indicating that even
though capacity was being added to this group, growth in capacity was occurring slower than for
the fleet as a whole and for the larger TEU groups in particular. What is notable is the increase
in shares of the greater than 5000 TEU group which grew from 0% of fleet in 1991 to 30% by
2006.
The increase in larger capacity containerships as a proportion of the containership fleet
has increased average capacity of containerships which has grown from 666 TEU/Vessel in 1991
11
and is projected to be 3520 by 2006 (Figure 3.2.1).

The traditional ship size was typically in the 3000 TEU range (Panamax). This
accommodated most ports and transiting of the Panama Canal. However, in recent years there
has been an important shift toward larger container ships. For example, in March 2007,
Clarkson (2007c) reported that the order book for 2009 forward was skewed substantially toward
containerships in the 8000+ TEU range with some new ships being built in the 12,000-14,000
TEU range. To quote from the most recent Clarkson report (2007c):
At the beginning of the 4th quarter, the VLCS (8000+ TEU Post-Panamaxes) totaled 1.27
m TEU of capacity spread across 145 vessels. However, this area is expected to show
very high growth over the next few years, with the VLCS fleet expected to reach 1.4 m
TEU at the start of 2008 and grow to 1.8m TEU by the start of 2009, representing an
increase of 94% on the start of 2007. (P. 32). ..... The boxship orderbook is dominated by
the VLCS size range which represents nearly 48% of the whole orderbook by
capacity....1.5m TEU is scheduled to be delivered in 2007 and 1.7m in 2008, but with the
orderbook now running an unprecedented 5 years ahead, 2.5m TEU is scheduled to be
delivered between 2010 and 2012. ...The average size of vessels ...in 2010 and beyond is
an impressive 7089 TEU thanks to the huge levels of Post-Panamax ordering ...p. 34.
However, much of the cost savings from increased ocean vessel capacities has not
accrued to shipping lines (Notteboom). He indicates that 1) larger ships have to lower rates in
order to fill ships, 2) upgrading fleet size for a movement requires increasing all the ships for a
firm for a move as movements typically require similar sized moves and upgrading all ships
takes time, and 3) first mover advantage in upgrading size which results in fierce competition as
other firms respond. Finally he indicates that there is a danger that the move to increase capacity
may accelerate resulting in overbuilding and falling margins.
12
6000
5614
4187
4000
3520
3677
3186 3192
3000
2142
2000
1613
1367 1340 1292
2009*
2008*
2007*
2006*
2005*
2004
2003
2002
2001
2000
1999
1998
1997
988
1996
1171
1995
1994
1022
821 935
1993
666
1992
1000
2627
2497
1991
Average TEU/Vessel
5000
Source: Containerisation Internation, From CDM, Tioga Group.
Figure 3.2.1. Container Vessel Deliveries: Average TEU/Vessel.

3.3 Changes in Container Vessel Characteristics
Containerships in the world fleet evolved through several generations and are continuing
to evolve toward larger capacities with higher shares of larger capacity ships. Harrison et al,
describes the first five generations of container ships by capacity and length (Table 3.3.1) and
Hackett describes containership characteristics by capacity (Table 3.3.2). These have continued
to evolve with the newest capacity containerships being designed with capacities of 14,000 to
18,000 TEU (Table 3.3.3) (Mercator Transport Group).
13
Table 3.3.1 Containership Evolution

Generation
Years Produced
Typical Capacity (TEUs)
Typical Length (ft)
<1000
450-630
First
Pre 1960-1970
Second
1970-1980
1000-2199
700
Third
1985 onwards
2200-3199
860-950
Fourth
1986-2000
3200-4799
900-1000
Fifth
1996-onwards
4800
1100
Source: Harrison et al, citing Muller.

Table 3.3.2. Design Draft Characteristics of Containership Fleet, 2001
Capacity
(DWT)
Number
% of Fleet
Capacity
Average (ft)
Max
(ft)
Min
(ft)
500-1000
533
26
36
17
1000-2000
863
24
32
40
21
2000-3000
420
21
38
43
33
3000-4000
249
17
40
46
33
4000-5000
165
15
43
46
35
+5000
137
16
45
48
39
Source: Hackett (DRI-WEFA).
14
Table 3.3.3. Prospective (Future) Maximum Vessel Characteristics for Panama and
Suez Canals
Future Panamax
Capacity
Future Suezmax
12000 TEU
18000 TEU
LOA
394 m
440 m
LBP
380 m
426 m
Beam
52 m
60 m
Depth
32 m
35 m
15.7 m
18.0 m
140700 t
207000 t
Draft (design)
Deadweight (tonnes)
Source: Herbert Engineering Corp. as cited in Mercator Transport Group.

4.
Port Constraints and Projects Impacting Container Shipping
4.1 Port Constraints: The overall growth of container shipping and the expansion of container
shipping from China has resulted in a building spree of new ports and expansions of existing port
facilities. This expansion of port capacity has kept pace with the growth of Chinese container
shipping demand, however, there are indications that excess capacity could arise as soon as 2009
in the Pearl River Delta Region (Hong Kong area) (Leach).
New projects in the Pearl River Delta Region would add 15 million TEUs by 2009 to
existing capacity of 25 million TEUs for the region. Leach cautions that this overcapacity will
likely be short lived as much of the current expansion is being funded by foreign investors
utilizing tax incentives to foreign investors by the Chinese government which are slated to end in
2008 which will slow the growth in expansion projects. Leach reports on a recent Drewry
analysis of the China container market which reports major port expansion projects between
2006 and 2009 in China would add an additional 45 million TEUs to Chinas container capacity.
As a result of past and anticipated growth, many ports are beginning to operate at
capacity or some type of constraint. Port constraints and expansion have been reviewed in
several recent publications (Hackett, Mercator Transport Group and The Tioga Group).
Hackett assessed U.S. National dredging needs. He used global forecasts for trade from
DRI-WEFA to estimate constrained/unconstrained vessel calls on U.S. ports to 2020. The
Atlantic ports have the largest number of cargo vessel calls constrained by channel dimensions,
followed by the Gulf ports. With planned U.S. Army Corps channel project improvements all
coastal regions will experience reductions in constrained vessel calls. However, the largest
improvements will occur for the Pacific ports. They project that for container vessels
15
constrained calls will drop from 40% to 4% with completion of projects in 2020.
Mercator Transport Group (MTG) discusses constraints and expansion with focus on
affects on San Pedro Bay Ports (SPB Ports include Los Angles and Long Beach ports) of Super
post-Panamax container ships (8,000-18,000 TEU and up to 16 meter draft). They indicate that
Asian ports of Pusan, Qingdao, Singapore, Yantian Yokahama and Tanjung Pelepas have or will
soon have the ability to accommodate super post-Panamax ships. Competitor ports are evaluated
on an individual port basis covering port characteristics, capacity constraints, inland constraints,
new or current projects planned, limitations to expansion, etc.
MTG evaluated port capacity for 1) Pacific NorthWest/BC, 2) Other California, 3)
Pacific Mexico, 4) South Atlantic, and 5) North Atlantic. They concluded that Pacific Northwest
ports have landside constraints that would limit ships larger than 8000 TEU. These are generally
due to rail infrastructure problems (Seattle, Tacoma, Vancouver), draft constraints (Vancouver)
and inability to expand facilities due to environmental concerns (Vancouver). They have
concerns on the ability of Prince Rupert to become a super post-Panama port due to questions on
their ability to attract business because they have not handled containers before, there is no local
demand for containers, it is not cost effective to relocate empty containers from Vancouver to
Prince Rupert, and they do not foresee opportunities for multiport offloads.
For other California ports, Oakland has established itself as competitor to SPB but they
questioned whether Oakland will be able to handle containers of 6000+ TEU due to rail and
depth restrictions. Other ports are limited because of poor rail access (Eureka, San Fran,
Redwood City, and San Diego); environmental/community group opposition to expansion;
limited water depth and opposition to dredging; and small local market (Eureka and Port
Hueneme).
Two established ports in the Pacific for Mexico (Manzamillo and Lazaro Cardenas) have
adequate depth or could be dredged to provide additional draft. Both question the ability of
Mexican Rail lines to provide efficient service, while Manzamillo has expansion limits. A third
proposed port is south of Ensenada (port Colonet). Prospective annual capacity would be 5
million TEU per year. Rail service would be by new mainline connection to Yuma where it
would connect to UP.
They argue that all ports other than SPB have limits on prospective applicability of PostPanamax containers. Also, SPB has less rail capacity restrictions than other west coast ports.
The major restriction across most ports relates to rail infrastructure. The Mexican ports need
substantial upgrades to become competitive land bridge service corridors.
Currently no ports in the South Atlantic are able to accommodate fully laden 8000 TEU
containerships with draft of 14 m. Most of the ports are on rivers (high dredging costs), or have
environmental opposition to improvements at areas where dredging costs are lower. One
planned project with deep water access is Jasper County SC, however state agencies in both
Georgia and South Carolina are opposing the project.
16
In the North Atlantic, Halifax has deep water port capable to handle post-panamax ships
via all water service via Suez. Boston has depth to service post-panamax ships, however
landside rail access is a constraint and unlikely to be improved due to high land values. Thus,
they do not view this port as service provider for high volume container services.
In New York, the ACE has a large dredging project to increase draft to 13.6 meters and
has approval to further deepen to 15.2 meters. Due to the high dredging cost (bottom rocky), it
is unlikely to allow for further draft increases. Also the port has bridge problems which limit
ship height. Plans are ongoing to replace these bridges. Philadelphia has draft restrictions
limiting port that has ACE approval to increase to 13.6 meters since 1992, but work has not been
done. Maryland also has bridge problems that limit the size of ships and requires dredging. Its
inland location (100 miles from ocean) will limit super post panamax adoption (requires pilotage
of 10 hours in both directions). Hampton Roads is best positioned of the Atlantic ports to handle
super post panamax container ships.
Thus, for East Cost Ports, New York/New Jersey and Hampton Roads will be able to
handle the largest container vessels of 10-14,000 TEU with draft of 14 meters. Limitations at
other ports indicate that variety of container ship capacities must be maintained for East Coast
fleet.
The Panama expansion would allow for 12000 TEU vessels to move through the canal.
The Mercator Group constructed a lift ratio to compare efficiency of larger size vessels for AsiaUSWC to Asia-USEC via Panama. The lift ratio is a measure of expected reliability, it is the
ratio of maximum possible lifts that could be completed within the available port time divided by
the number of lifts required per voyage when fully loaded (minimum should be at least 1, desired
levels 1.25 to 1.50). They found that larger ships show lower reliability, however the US East
Coast services have a higher lift ratio than for same size ship at US West Coast ports (likely due
to longer voyage times and sufficient labor to operate longer at US East Coast ports). This
suggests that as ship size increases it is better to stop at fewer ports and steam fewer miles.
However, the lower lift ratios (higher efficiency) at USEC ports indicate that larger ships should
move via Canal to USEC than to USWC ports.
They provides alternative scenarios for growth of container demand and evaluates impact
of Panama Canal improvements on port calls at SPB. Assumes growth occurs at 7% (base case),
5% (low) and 9% (high).
Kaufmann discusses congestion impacts on ocean container shipping. He argues that
congestion problems at North American west coast ports are tied to freight operations. This
results in environmental degradation which is the focus of new fees and taxes by many
government entities. He argues that SPB ports are least impacted by new fees and taxes, but this
phenomena is driving interest in the development of Mexican Ports and Prince Rupert. He
cautions that if governments try to reduce congestion and environmental degradation by
increasing fees and taxes above the port costs at Mexican Ports or Prince Rupert, ocean liners
will divert to Mexico or Canada.
17
4.2 Major Projects Impacting Container Shipping: There are many new projects that have
been recently developed and/or are under varying stages of planning. These are summarized
briefly:
Panama Canal Expansion The Panama Canal is one of the major routes in international
shipping. With the growth in container shipping, the outlook for the Panama Canal has
escalated. The Canal projects increases in container transits from 2025 range at 296 Million
PCUMS to a high of 407 million PCUMS for an optimistic forecast (Panama Canal Authority,
2006, P. 26) by 2025.
The Panama Canal is limited by width, and total throughput. Ships are limited to widths
of 105 feet and locks restrict vessel transits to 23 per day. The forecast for the Panama Canal is
that traffic through the canal will reach maximum capacity in 2010 (limiting additional traffic
through the canal). For the planned expansion, new locks will open in 2014 (Tioga Group). The
canal expansion would add a third lane for traffic along the canal by constructing a new set of
locks and would widen and deepen Pacific and Atlantic channels and the navigation channel on
Gatun Lake (Panama Canal Authority, 2007a).
The third set of locks project is a plan to expand the Canals capacity composted
of three integrated components: 1) the construction two lock facilities - one on the
Atlantic side and the another on the Pacific side - each with three chambers, each
which include three water reutilization basins; 2) the excavation of new access
channels to the new locks and the widening of existing navigational channels;
and, 3) the deepening of the navigational channels and the elevation of Gatun
Lakes maximum operating level, (Panama Canal Authority, 2006, P. 1).
The construction of the third set of locks will take from seven to eight years. If the
project is approved in 2006, new locks could begin operations between 2014 and 2015 and is
estimated to cost 5,250 million Balboas. The third set of locks will be able to transit and
additional 1,250 million PCUMS (a TEU is equivalent to approximately 13 PCUMS) during its
first 11 years of operation and produce 6,000 million in total revenues in 2025.
Each lock complex will have three chambers similar to the existing Gatun Locks. The
project will create a new lane with one lock on each side that will handle vessels up to 49 meters
wide, 366 meters long and 15 meters deep. This will allow ships with cargo volumes up to
170,000 CWT or 12000 TEU. The expanded Canal will have a maximum capacity of 600
million tons per year (Panama Canal Authority, 2006, P.27). In addition to these, the Panama
Canal is in the process of expanding. This expansion will allow for more vessels to transit the
canal, transits would occur with greater reliability, and would allow for larger vessels to transit
the Canal. Previously, the Canals capacity was restricted in a number of dimensions (ACP
2006). The expansion will result in an expansion of the existing lane, and create a new lane for
larger vessels. The vessel capacity of the new lane is shown below (Quijano, J. 2007):
18
Item
Current Canal
Expanded Lane
Width (meters)
32
49
Length (meters)
294
366
Draft (meters)
12
15
Capacity (teu)
4,400
12,000
Source: ACP 2006 and Quijano (2007)

Hence, the capacity of the new canal will be expanded sharply, and allow for substantially larger
vessels.
Concurrent with this expansion is for an increase in Canal tolls. The ACP announced in
June 2007 that they would propose increased fees from $ 49 to $72/ laden TEU. These are all
drastic changes and will have important impacts on spatial flows and intermarket competition.
Suez Canal Expansion The Suez Canal Authority has a 10 year project to widen and deepen the
Canal to accommodate VLCC and ULCC class tankers with cargos up to 350,000 DWT by 2010.
These improvements should allow increase capacity of containerships able to utilize the Suez
Canal from 12000-12500 TEU up to 18000 TEU (Mercator Transport Group).
Prince Rupert Container Terminal Prince Rupert is developing a New Container Port able to
handle 12000 TEU containerships. Phase 1 involves building a 500,000 TEU terminal per year
expanding to 2 million TEU by Phase 2 to serve Chicago, Memphis, Winnipeg, Toronto and
Montreal. Phase 1 openned in August of 2007 and is planning to have a draft of 16 meters and
3-4 Super Post Panamax Cranes. Phase 2 is set for completion in 2010 and with have draft of 16
meters and 8-12 Super Post Panamax Cranes (Tioga Group, Prince Rupert Port Authority).
West Coast Mexico The Port of Lazaro Cardenas has plans to expand which are underway
(Mercator Transport Group). The Kansas City Southern became the sole owner of
Transportacion Ferroviaria Mexicana, S.A. de C.V. (TFM) in late 2005 and renamed it the
Kansas City Southern de Mexico (KCSM) which serves the port of Lazaro Cardenas with a
direct line to Kansas City (KCS).
A third port is being proposed south of Ensenada (port Colonet). Prospective annual
capacity would be 5 million TEU per year. Rail service would be by new mainline connection to
Yuma where it would connect to U.S. Rail lines (Mercator Transport Group). The Union Pacific
has pulled out of this. The Mexican Government plans to start bidding on projects by December
of 2007 (American Shipper).
Other Port Expansions in the US
debated. These include a
There are several other U.S. planned expansions still being
19
Houston: a 1.4 million container Bayport terminal expansion;

Mobile is planning a container port with 300-400 TEU in Phase I expanding to 1 million
TEU for Phase 2;
Tacoma: The Port of Tacoma is purchasing land for a prospective new large container
terminal and SSA Puyallup is building a new terminal at Tacoma which could reach 1
million TEU/year (DiBenedetto, June 11, 2007b).
Dredging Projects Dredging is underway in New York where the ACE has a dredging project to
increase draft to 13.6 meters and has approval to further deepen to 15.2 meters. Dredging
projects are also ongoing in Norfolk and should be finishing in Oakland in 2008 (Tioga Group).
Dredging has been authorized by the USACE for Philadelphia since 1992, but work has not been
initiated.
Other The Port of Vancouver is replacing several bridges that limit transit times of larger
container vessels and adding container terminals (DiBenedetto, March 5, 2007a). Deltaport in
British Colombia is expanding from capacity of 900,000 TEU/year to 1.3 million TEU by 2009
(Tioga Group).
5.
Previous Studies on Specific Issues
There are some specific issues of importance to the IWR in their planning group and
process. Of particular importance are issues related to infrastructure planning, including port
expansion, port pricing, landside modal shares, economies of size, and costs. This section
reviews studies on these issues in detail. In addition, other areas of interest are identified,
including interport competition, projections, port constraints and expansion. Each of these are
discussed including a summary of the problems being addressed, the relevant studies, their
procedures, results etc.
5.1
Infrastructure Planning Several aspects of infrastructure planning are important for the
container shipping industry. These include: Port expansion; port pricing; outbound modal
shares; economies of size and costs. Each are discussed.
5.1.1. Port Expansion Planning for port facilities involves several factors. Harrison et al. 2000
indicate that ocean transportation is only one element of the transportation system and studies
looking at demand should consider a whole systems approach.
The recent growth of logistics and the emphasis on providing service across the
entire supply chain suggests that the mega-containership issue should be treated
as an element in the transhipment of commodities from producer to consumer.
Such a treatment widens the system approach and has important implications for
the highway and rail elements at the landside access P. 14).
A prime element in infrastructure planning and design of ports. Several articles focus on
a potential move to a Load Center port system where containers are moved in large ships to
20
selected hubs or Load Centers and then moved to smaller ships for continued movements.
Harrison et al. (2000) uses the terms load centers or regional hubs interchangeable and indicates
that movement toward a global network of giant terminals is now fast approaching. Others note
these are present in well established European ports but have not materialized in U.S. port
regions yet. Thus, several U.S. ports are competing for service to the largest container vessels.
The later parts of the Harrison et al. projects initially focused on identifying a Load Center for
the U.S. Gulf. This objective was modified to determining factors important for port location.
Bomba and Harrison (2000) developed a model to identify potential Load Centers for
Containership ports in the Gulf. They discuss relevant topics for container port development
including: 1) infrastructure demands, 2) environmental constraints, 3) locational attraction and
landside access, and 4) port finance. Then they developed a load center selection model based
on heuristic methods, weights and scores.
5.1.2. Port Pricing Bennathan and Walters (1979) reviewed theories of port pricing. They
utilize a definition for port activities that includes sea, land and deliver related services and
developed a simple economic model of ship costs that focuses on effects of port conditions,
investments and charges on the costs of shipping. Under competitive conditions or where a
monopolist is pursuing to maximize profits, when determining optimal ship size there is a basic
tendency to a square root law such as in simple models of inventories and other models of
economies of scale. This results in larger vessel sizes being optimal for longer voyages.
The optimal vessel sizes vary according to (gL-mA)- where g is port cost for each ton, L
is Tons unloaded each day irrespective of size, m is increase in tons unloaded each day for
additional DWT of ship, and A is fixed port cost. This is complicated for ports by the fact that
different parties have differing control over these parameters. For containers, a rough
approximation is m=0 (i.e., bottleneck tends to be in transit shipping areas, although larger ships
may employ multiple cranes). When effects of idleness in port are added to a simple model, the
optimal ship size increases as idleness increases. Port developments that reduce ship congestion
(idleness) will benefit small vessels, while increases in the amount of cargo worked per day (L or
m) act just like increasing distance (promote larger optimum ship size).
Port prices are largely user and service charges. For containers, port charges are paid by
shipping lines. For others, charges may be split between different parties. Cargo working costs
form the major portion of port charges, accounting for 30-36% of voyage operating cost for
conventional vessels and 50% or more for containers. Other port charges account for 4-9% of
the voyage cost of conventional liners (e.g., for a 1210 TEU container they listed 56% for cargo
expenses and 8% for other port charges).
They evaluated the elasticity of demand for port services. If there is an absence of port
competition, the elasticity of demand is likely to be very low. The proportion of total port
charges in the price for most commodities and most countries will lie below 5 percent of c.i.f.
values. Thus, the elasticity of shipping should be only 5 percent of the elasticity of demand for
the product. However, they argue that for ports with considerable opportunities for substitution,
21
elasticities would be higher.

Bennathan and Walters indicate that ports are subject to supply and demand conditions
which are constantly adjusting (nearly always out of balance). This complicates pricing
decisions as charging too high tariffs can reduce demand and if there is oversupply of berths,
reducing tariffs can only increase demand to a point before losses occur. These problems exist
for both market or planned economies and neither is more able to estimate appropriate supply
and demand better than the other. They indicate marginal cost pricing of ports is most
appropriate method for determining tariffs for perfect competition and indicate deviations from
this will depend on the level of competition in the market. However, they indicate that effects of
monopolies, monopsonies and conferences can give rise to many problems which focus on
whether variations in port charges will be passed on by conferences to competitive traders which
is examined in a later chapter. Another factor in port pricing is the length of term utilized for
marginal costing. They indicate that shorter terms are better because supply and demand for
ocean vessel transportation are generally out of balance.
Economies of scale for ports are generally split into two areas. One focuses on the
economies of port location and the other on the appropriate size of those facilities. Port planners
frequently calculate an optimal occupancy rate of berths by a minimizing the sum of port and
ship costs (Bennathan and Walters, p. 47).
Bennathan and Walters examined port congestion theory and impacts on port pricing.
They indicate tariffs are set lower in congested ports because of the high probability that
increases in port prices would be reflected in increases or multiplicative increases in domestic
prices for imports and lowered prices of exports. As such they are viewed as direct transfer from
domestic producers and consumers to port authorities. The relevant marginal cost of shiploads
reflect delay costs equal to the port cost + the own ships delay cost + additional delay costs
caused to all other vessels. The required delay surcharge is calculated as the delay cost per ship
multiplied by the elasticity of delay with respect to the throughput of the port. In practice the
elasticity can be calculated at the port periodically or guessed at.
The structure of shipowners has an impact on congestion surcharges. Monopolists will
be able to exert market power over port to extract monopoly rents. This monopolistic power is
dependent on the elasticity demand and is greater for congested conditions. If no conference for
a port served by multiple independent conferences is dominant, then this approaches a perfectly
competitive market.
They pose several advantages of congestion pricing including: 1) The port authority gains
surplus caused by demand of facilities, 2) Levies provide funds for futures expansion, 3) levies
encourage efficient use of port facilities and 4) Port authority receives rent rather than other
players. Disadvantages include: 1) difficulty in charging levies. 2) congestion charge may be
passed on.
Another factor in port pricing is if ports factor in national interest in their decision
22
making. Ports typically have some sort of monopoly power and as such can choose between
marginal cost pricing and profit maximization for the port when establishing pricing practices.
Meersman, Vande Voorde and Vanelslander (2003) provide a more recent review of
literature into port pricing. They discuss in depth the issue of marginal versus long run costs for
pricing ports and indicate the literature focuses on five categories 1) cost based pricing, 2)
method for cost recovery, 3) congestion pricing, 4) strategic port pricing and 5) commercial port
pricing (privatized ports).
5.1.3 Modal Shares A very important parameter in port planning is the market shares of
transportation mode for interior land side shipment. Harrison et al. (2000) indicates modal
shares for landside movements from U.S. ports vary by port area. The West coast split
(rail/truck) is 50% rail, while on the east cost the rail share is only 24%. Houston is even less, as
rail accounts for only 20% of modal shares for container shipments from the port of Houston.
Important factors for modal shares for ports are double stacking of rail cars which is
occurring more on the west coast as east coast railroads have a higher incidence of tunnels that
do not allow for double stacking. Traffic flow at all ports is important as increases in truck
shares can result in congestion problems. Other developments for trucks are the introduction/and
further adoption of Long Combination Vehicles (multi container trucks or LCVs).
5.1.4 Economies of Size Economies of size in ocean container shipping has been the focus of
several studies including: Cullinane and Khanna, (1999) Harrison and Figliozzi, (2001), Gao
(1994) and Lim (1998). Lim provides a general discussion of impacts of increasing ship size in
an effort to capture economies of scale for container ships. As shipowners increase ship sizes,
rates have drop more than the drop in costs due to over building of shipowners (i.e., rather than
limited shipowners building larger ships, he argues too many shipowners add larger ships
beyond what industry supports). The results of firms response to economies of size is to provide
a direct subsidy from shipowners to shippers and consumers.
The Tioga Group indicates an increased trend toward larger containerships. Currently,
the largest containerships being delivered to shipping lines are 13000 + TEU. Expectations are
for sizes to increase to 12,000 TEU for transpacific and transatlantic trades, but reach 18000
TEU for Europe/Asia trade. They indicate that as larger containerships are adopted, they are
first adopted for Europe/Asia routes, then adopted for transpacific routes, then adopted for
Americas/Africa or intra Asian trade routes. They also indicate that as containership sizes have
increased, ship speeds are also increasing.
Gao developed a two stage model to determine optimal container fleet size minimizing
capital and operational costs of containers while considering leasing options, devanning times at
ports (assumes these are fixed by port, i.e., a port is able to devane containers at a fixed time
continuously). The model first computes least cost flows, then linear programming model is
used to adjust flows so that supply and demand of containers are equalized. He shows a couple
of examples and list references that had modeled prior fleet sizes (many of which assumed fleet
23
size was fixed and only look at optimal allocations.

Harrison et al, reported on a study by Payer who indicated shipbuilder Germanischer
Lloyd found the optimum design for containership would be 8,000 TEU based on a comparison
of 40 ship designs and impact of those ships on nine round-trip alternatives. Harrison et al.
indicate Payer found 1) The longer the sea leg, the greater the fuel load, which influences total
cost. 2) Forming a mega-containership shuttle between two markets can reduce cost per TEU,
and 3) The more ports a vessel calls on, the higher the cost per TEU. Interestingly, the maritime
savings from reducing ports of call may not be sufficient to outweigh the additional costs
incurred through the need to use more inland transportation to move containers to final
destinations (Harrison et al. P. 40).
Harrison and Figliozzi, (2001) construct a total cost model for container shipment as:
Total cost = SOC + PC + CC + LSC + IC
where: SOC = Ship operating costs, PC = Port costs, CC = Container costs, LSC = Landside
costs, and IC = Inventory costs. They used this to evaluate total costs at sea and costs per TEU
for various ship sizes.
They evaluated optimal size by minimizing total vessel operating costs. They had four
main findings: 1) the larger the ship, the lower the cost per TEU mile, 2) the less time a ship
remains in port, the larger it can be, 3) high fixed costs lead to larger ships, and 4) the longer the
route distance between ports, the larger the optimum ship size. They note that economies of
scale are significant for larger size ships when fully loaded, yet when container volumes are
lesser, smaller vessels are preferred.
Cullinane and Khanna quote Pearson (1988) indicate that as ship size increases, total ship
costs at sea per ton or TEU decrease. And the efficiency of a ship is closely related to total time
spent on that voyage. Thus, they point to Jansson and Schneerson (1987) who indicate that with
increases in ship size, economies of ship size are enjoyed at sea and diseconomies of ship size
are suffered at port. Given the current trend, companies making investments believe that
economies of sea travel exceed value of diseconomies at port. Comparisons between different
ship sizes are complicated by different vessel specifications, operational standards and
accounting methods. Also cost data are difficult to obtain because it is commercially sensitive.
This paper builds model to evaluate this tradeoff.
5.1.5 Costs Much of cost saving have been obtained from the sea portion of container
movements (Notteboom). Most of container shipping costs are now comprised of the land-side
movement costs - he indicates 40 to 80% of total costs for containers are for land-side
movements. This has fostered moves toward strategic alliances, vertical integration, and other
relationships among shipping lines and inland freight carriers.
Cullinane and Khanna estimated relationships for classes of operating costs in their
24
examination of economies of scale for ocean vessels. They estimated several relationships
between cost components and nominal TEUs (NTEU assumes 14 DWT per TEU) for a range of
ocean vessel sizes.
They indicated that prior studies had estimated functional relationships between ship
costs and dwt where ship costs equal dwt0.67. They estimated a functional relationship between
the initial capital cost (purchase price) for container ships and capacity where ln(Ship Price) =
4.8097 + 0.759 ln(NTEU) r2=0.93. They assume total annual cost of repairs, maintenance,
insurance, and administration is 3.5% of initial capital cost. They also assume ships are crewed
by set amount dependent on capacity and crew costs calculated based on representative monthly
crew expenses.
An estimated relationship was used for fuel oil consumption and brake horsepower for
engines. Daily fuel oil consumption = Installed bhp * SFOC (specific fuel oil consumption) *
Utilization (80%) * 24 / 1000000. Ship size elasticity of installed bhp (brake horse power)
Ln(bhp) = 2.6308 + 0.967 ln (NTEU)
Mercator Transport Group indicate cost savings for an 8,000 TEU vessel on an Asia-NA
trade route reduced vessel costs by $99/TEU over a 4,500 TEU vessel. A 10,000 TEU vessel
would further reduce costs over 8,000 TEU vessel by $52/TEU. They suggest that container
vessels will max out for US West coast at 12,000 TEU by 2020. This is due to there being
increasing scale economics for ship sizes above 12,000 TEU because a change in ship
technology is required. These diseconomies arent offset till ships achieve 14,000 TEU or
larger.
Harrison and Figliozzi, 2001 construct total costs for container shipment as
Total cost = SOC + PC + CC + LSC + IC
where
SOC = Ship operating costs
PC = Port costs
CC = Container costs
LSC = Landside costs, and
IC = Inventory costs.
They used this along with published elasticities for cost categories and assumptions on
ships by size to evaluate allocation of total costs at sea and in port and costs per day and per TEU
for various ship sizes.6 Total operating costs per day for 1000 to 7000 TEU vessels are listed in
Table 5.1.1.
When evaluating optimal ship sizes, three different optima could be utilized. These include 1)
minimization of total vessel operating cost per TEU, 2) maximization of net operating surplus per TEU, 3) maximum
return on capital by shipping company.
25
These results show that capital costs are the most important element fo cost, followed by
fuel costs. The costs also vary by vessel size in each category. The derived results suggest that
the cost per day per TEU decline from $23 to $8/TEU when going from ships sized at 1000 TEU
to 7000 TEUs. Thus on a trip involving 19 days at sea, a 7000 TEU vessel would have
approximately a $282/TEU advantage (according to these calculations).
These are very comparable to the results derived analytically in Wilson and Dahl 2008
using an analytical model and ACE inputs. Their results showed that the cost savings on a
prototypical route would result in about a $300/TEU savings between a 7000 TEU ship vs. a
1000 TEU ship.
26
Table 5.1.1. Total Costs per day for Operating Cost Categories, by
TEU Size
TEU
Fuel
Fuel
Capital
Main Eng Aux Eng
Cost
Crew
Overhead
$Total cost/day
1000
1000
61
10225
1440
6946
2000
6750
144
13939
1440
7714
3000
9302
239
16708
1440
8203
4000
11679
342
19001
1440
8568
5000
13934
453
20994
1440
8862
6000
16096
569
22777
1440
9110
7000
18183
689
24402
1440
9325
Source: Harrison and Figliozzi, 2001
Total
22573
29987
35892
41030
45683
49992
54039
Cost per
TEU
23
15
12
10
9
8
8
Table 5.1.2. Allocation of Ship Operating Costs at Sea and In

Port by TEU
Allocation of Costs at Sea
TEU
Capital
Labor
Admin
Fuels
----Percent---1000
45
6
31
17
2000
46
5
26
23
3000
47
4
23
27
4000
46
4
21
29
5000
46
3
19
31
6000
46
3
18
33
7000
45
3
17
35
Allocation of Costs in Port
TEU
Capital
Labor
Admin
Fuels
----Percent---1000
55
8
37
0
2000
60
6
33
1
3000
63
5
31
1
4000
65
5
29
1
5000
66
5
28
1
6000
67
4
27
2
7000
68
4
26
2
Source: Harrison and Figliozzi, 2001
Harrison and Figliozzi, 2001 indicate costs for other aspects of container shipping. They
indicate 25% of container trade accrues transhipment costs which may range from $75 to $225
per TEU. For container costs in 2000, 50% of containers were tied to term lease agreements,
35% were fixed on master leases (containers leased for lifetime of box) and the remainder were
hired. A 20 ft. box term lease rate in 1999 to 2001 ranged from $0.65/day to $0.75/day. Master
27
leases traditionally earn a premium over term leases, and they report costs for master leases in
2001 of under $1.00/day.
Landside costs for trucks ranged from $0.20/truck mile for double stacks and $0.90/truck
mile for containers (Muller, 1999). Finally, Harrison and Figliozzi, 2001 developed a model to
estimate inventory costs. They indicate that inventory costs increase with increases in total trip
times, value of cargo, frequency of calls, and decreases in reliability. They pose two examples,
one is container with commodity valued at $30000 and another is valued at $10000. Inventory
costs for the container with the higher valued commodity can vary from $20 to $30/day, while
the lower valued commodity can vary from $10 to $18/day.
5.2 Interport Competition Bennathan and Walters reviewed interport competition economics.
They focused on several aspects of competition including: 1) Inland competition between ports;
2) Transhipment competition; and 3) Effects of containerization. When considering inland
competition, differences in congestion at ports lends to switching when hinterland is continuous
between two or more ports. However, extent of switching can be affected by inland
transportation costs.
They list an example of lumber where inland costs are $0.10/ton mile with $1 increase in
port charges per ton only shifting drawing area 10 miles due to high cost of inland shipping.
They also note that it is common for container owners to practice what they term absorption.
They define this as when there is competition between ports, the absorption of inland
transportation cost-or rather of differences in transport cost to common destinations, (p.152).
This discriminates both against a particular port (reduces inland costs of competing port) and
against shippers located near the favored port.
Specific attention is made by ocean carriers and alliances when setting shipping rates.
They specifically consider the effects of competition from direct shipments vs. transhipment
routes (shipment to one port where containers are moved from larger to smaller vessels for
delivery to final port). For strategic purposes, shipping lines have in the past set direct rates to
preclude transhipment options.
Finally, interport competition is affected by containerization of trade. As port volumes
shift from conventional to containerized trade, ports will have reduced monopoly power and find
it harder to profit or cover costs especially where there is considerable excess capacity at the
port. The switch increases the average competitiveness of ports relative to competing ports,
however it also increases the monopoly power of shipowners.
Other studies have examined interport competition including Blonigen and Wilson, Ng,
Veldman and Buckmann,
Ng surveyed top 30 shipping lines to determine attractiveness of ports in North European
Transhipment Market. Respondents were asked to assess several characteristics of attractiveness
for ports and rank responses on a 0-5 scale. Then they were asked assess these factors for
28
several specific ports and to rank these on a -3 to 3 scale. They found that factors other than
monetary costs influence port attractiveness including time efficiency, location and service
quality. The findings suggest that for North European ports shipping lines opinions on
attractiveness are consistent with their choice of hubs. However, he argues that attractiveness
and competitiveness of ports should not be confused and provides an example where other
researchers assume increases in attractiveness should result in increased market shares and
throughput growth. To counter this assumption, Ng presents an example from his results for the
ports in Rotterdam and Hamburg which are both attractive to shipping lines, yet they service
different hinterland regions, thus the two ports are not in direct competition.
Veldman and Buckmann indicate that modeling of container shipping industry is
becoming highly complicated by the number of alternatives emerging on land, and at ports both
from a sea-land interface, and as a sea-sea (transhipment point) interface. They model ports as
node in transportation system and develop a logit model to explain market share of a ports
routings for each of traffic zones or regions. Explanatory variables include transport cost, transit
time, frequency of service and indicators of quality of service. They use a logit model to
determine routing choice and derive a demand function. The demand function they note could
be used for port traffic forecasting and for evaluation of container port projects. They applied
the model to West European Container Hub Ports.
Their model estimated routing choice with respect to continental hinterland regions as a
function of (change in costs, change in costs by distance from port, change in market share hubport, change in market share hub-port by distance from port, dummies for Rail, IWT ant IWT
Rotterdam-Antewerp). They further estimated routing choice with respect to overseas hinterland
regions as function of (change in costs, change in costs by distance from port, change in market
share hub-port).
They applied results from logit model to forecast effects comparing 1) low cost, low
quality routing to high cost, high quality routing, 2) evaluates effect of change in port recovery
costs of market shares of major North Sea container ports and 3) assesses market shares as a
function of changes in generalized costs of project at Rotterdam. In case 2, he finds small
changes in market shares of ports (3.2% Rotterdam, 1.2% Antwerp, -4.3% Bremen and -4.2%
Hamburg). In case 3, they found increasing costs of using Rotterdam by Euro 27/ TEU halved
container market shares for Rotterdam.
Blonigen and Wilson developed a methodology utilizing U.S. Census data to estimate
port efficiencies across ports over time. Past efforts to measure port efficiencies utilized surveys,
however these are limited in time and subject to views of participants which may include other
factors of country in their evaluation of ports. Other efforts applied data envelopment analysis
and econometric estimation of production/cost functions of ports.
They utilize import charges and through a fixed effects model estimated the portion of
import charges for foreign and U.S. ports and use these as measures of port efficiencies.
Components of import charges reflect 1) costs associated with loading freight and disembarking
29
from the foreign port, 2) costs connected with transportation between ports and 3) costs
associated with U.S. port arrival and unloading of freight). Fixed effects included estimated
parameters for 1 and 3.
Estimated parameters for fixed effects included distance, weight and value per unit,
containerization and interaction terms between containerization and weight and value per unit.
Results indicated that distance, weight and value per unit were positively correlated with import
charges. A 10% increase in distance would increase import charges 1.3 to 2.1%. Weight
increases would increase import charges on nearly a one to one basis, while a 10% increase in
value per unit would increase import charges by 5.5%. Effects for containerization were
negatively correlated with import charges, though the effect was small. Interaction terms
indicated effects of containerization were reduced for heavier weight products and increased for
higher value products.
They estimated port efficiencies relative to Oakland and compared results from 1991-93
with 2001 to 2003. They ranked ports highest to least efficiency relative to Oakland (most
negative to most positive parameter estimate). They found many West Coast and Gulf ports
were ranked in upper half of list with Richmond-Petersburg most efficient. Further, Gulf ports
typically improved in efficiency from earlier period to later while East Coast ports lost
efficiency.
They utilized estimated effects in a gravity model to evaluate elasticities for trade volume
from increases in port efficiencies. They found lower elasticities for increasing efficiencies that
earlier studies. They indicate Clark et al. 2004 estimated elasticity at 25% for increase in
efficiency from 25th percentile to 75th percentile, whereas, they found only a 5% elasticity.
However they also indicate that product mix can have effects on their estimation procedures.
5.3
Projections and Methodologies
A range of studies employing different methodologies have been utilized to forecast

container trade volumes, trade flows, shipping modes, etc. Methodologies included applying
fixed growth rates over time, a more micro analysis that utilized expert opinions on longer term
adjustments in major drivers along with a network analysis that forecast service calls and ship
sizes based on import volumes, econometric models of mode shares, etc. Several of the
published forecasts for containership trade volumes utilize proprietary data and methodologies
(McGraw Hill-DRI, Global Insights, etc.). These are problematic as, methodologies are not
available for review.
Sivakurmar and Bhat (2000) developed an econometric model to estimate landside shares
for container shipping for two modes (rail, truck) for a Gulf Region port. Logit model of shares
estimated following Papke and Wooldfridge. They used data on freight movements (Reebie
Transsearch Freight Database, Transcad (county centroid distance calculations), county business
patterns (census bureau), population projections, bureau of economic analysis data.
30
Harrison and Figliozzi (2001) developed forecasts of container flows for Gulf markets for
next 20 years in 5 year increments assuming difference scenarios (pessimistic, normal and
optimistic). They indicate that forecasting container demand has become too difficult, so instead
they did sensitivities of expected growth rates. They assumed fixed growth rates based on
historical data. The pessimistic case used 2% and 4%, normal used 4% and 7%, and optimistic
used 6% and 9% growth rates. Using these growth rates, 20 year forecasts were developed and
aggregated to 6 regions. Growth rates applied differentially to original flows (slower growing
vs. faster growing). Their results indicate that routes to U.S. South Atlantic ports that achieve
volumes significant to attract attention of lines for mega-containerships are from routes from
Europe and Mediterranean Middle-East, Asia, Africa and Oceania. They found larger volumes
for Carribean and Central American routes, but indicate these are serviced by smaller ships due
to the low probability of being serviced through load centers and high call frequencies of smaller
liner vessel schedules. For Texas gulf, they indicate that even for the most opportunistic
scenario, only in period 15-20 years forward do volumes increase to numbers large enough to
attract mega-containership liner service from Europe and Mediterranean routes.
The Mercator Transport Group projected future container vessel shipment activity levels
(to 2020). First they reviewed historical trends from 1990 to 2004, and then estimated short term
projections for 2005-2007 based on trends. Longer term projections were developed for 20082020 using a micro analysis. This analysis was developed based on expert opinions considering
the following fundamental drivers:
1) Developments and constraints in vessel design, engineering and technology,
2) Changes in vessel capacity and operating costs
3) Capacity related conditions and constraints at major container ports (Asia and North
American ports competing with San Pedro Bay (SBP) ports.
4) Changes in structure of liner industry (mergers, acquisitions, consolidations)
5) Panama Canal
6) Forecasted levels of container trade between Asia and North America (Asia to NA, for
inbound, head-haul direction) (Note: they refer to Head-haul vs. back-haul portion of
round trip).
They used these expert opinions to forecast firm structures (number of alliances), vessel
costs and characteristics by size, service routes and capacity limits at major ports. Then they
used these estimates to forecast service calls and ship sizes utilized to satisfy import volumes
coming from origins on service routes to serve destinations. Ship sizes were based on service
calls and import volumes to North America as import volumes exceeded export volumes by over
3:1 at SBP ports. They did sensitivities on several of the critical expert opinions impacting firm
structures (alliances, Panama Canal, etc.).
They indicate impact of improvements in Panama Canal would likely shift some large
container moves to U.S. East Coast from Asia, but shift smaller Panama Canal traffic (4000
TEU) to SPB. Net effect would be insignificant.
31
There are several large-scale efforts to make projections on container trade. These
include Clarkson (2007a and 2007b), Drewry (2007) and Global Insight. Clarkson and Drewry
routinely provide emirates 1-2 years forward and these are widely circulated. Their
methodology is not reported but it implies it is based on macro-economic variables and/or expert
judgement. The estimates by Global Insight are also widely cited and referred to in the industry,
and these are longer-term.
The Global Insight analysis was presumably used by Hackett who reports forecasts of
container trade through 2050 and uses these global forecasts (private estimates from DRIWEFA) to construct estimates of constrained/unconstrained U.S. port vessel calls to 2020. He
indicates that in 2000 1.2 billion tons of U.S. commodity trade moved through U.S. ports and
forecast that volume will increase to 1.8 billion tons by 2020 and 2.0 billion tons by 2050. They
project the shares of containerized trade to increase and the growth rate will average 2.7%/year
for next 50 years. They project that China will be the source for over 2/3 of U.S. containerized
trade by 2020. Tonnage growth for port areas over the next 50 years will be highest for Pacific
ports (Twice that of Gulf Port growth rates), followed by Atlantic ports (halfway between Pacific
and Gulf Ports) and Gulf Ports.
Container ships make the most calls on U.S. ports, generally arriving and leaving at
similar capacity and generally make multiple calls at U.S. ports per trip. General cargo vessels
also arrive and leave with similar capacity. Tankers and Dry Bulk vessels generally call on one
port and have lesser capacity either on return trip or arriving. Containerized trade in 1995
accounted for 9.4% of traded seaborne tonnage and is predicted to increase to 25% by 2050. By
2050 container trade was projected to increase from 157 to 530 million metric tons (average of
2.7%/year).
Global Insights (formerly DRI-WEFA) forecast ocean shipping and container trade.
They provide detailed short term forecast to 2008 and a more general longer term forecast to
2020. The basis of their forecasts is based on historical trade data and the Global Insight World
Trade Model. No further detail is provided. They forecast Container traffic to grow from 579
million tons to 1.1 billion tons by 2022 or from about 56 Million TEUs in 2000 to 150 Million
TEUs by 2022 (Table 5.3.1). Container trade in the long term will outpace tanker and dry bulk
shipping by almost 4% per year.
32
5.3.1 Growth Rates of Four Major Service Types - Ocean Freight

2000-05
2005-10
2010-15
2015-22
Dry Bulk
3.6%
2.6%
1.5%
1.2%
Tanker
1.2%
1.8%
1.4%
0.7%
General
Cargo/Neo Bulk
3.1%
3.6%
2.8%
2.2%
6.1%
4.5%
3.4%
2.8%
Container
Shorter term forecasts include containerized trade flows by route, both volumes and
growth rates of flows. Table 5.3.2 lists export flows to North America by Export Region. The
largest export region shipping to North America is NE Asia, having volumes more than 4 times
the next highest region. NE Asia also has the highest growth rate for shipments to North
America in 2004-2005 (15.7%-14%), declining to a 5.1% growth rate in 2008 similar to Eastern
Europe (6.0%). Other export regions were forecast to have growth rates for shipments to North
America in 2008 of 2% or less.
Table 5.3.2. Containerized Trade Flows to North America, by Export Region (000
TEUs)
Export Region
2003
2004
2005
2006
2007
2008
North America
335
361
368
375
382
387
North Europe
1711
1731
1747
1765
1789
1811
NE Asia
7913
9157
10439
11690
12725
13377
SE Asia
1331
1355
1398
1442
1496
1497
ANZ
187
199
200
202
205
209
Eastern Europe
110
120
127
133
142
150
Latin America
1934
2196
2332
2410
2455
2483
782
811
829
844
861
878
71
72
74
74
76
78
Total
14374
Source: Global Insight, 2005.
16002
17514
18935
20131
20870
Med
Middle East
33
5.4. Spatial Optimization and Simulation Models

Various methodologies have been utilized to evaluate aspects of container shipping. Luo
and Luo and Grigalunas developed a spatial-economic, multi-modal container transportation
simulation model for US coastal container ports. The model is used to price elasticity of demand
for port user fees. It minimizes costs and was used to estimate annual container transportation
service demand for major container ports in the U.S. Costs included shipping costs by ocean,
rail, truck, etc., costs for facilities use (port fees, etc.) and includes time costs. The model is
constructed with a shortest path algorithm (widely applied in economic analysis and
transportation engineering), as a dynamic programming problem. They assume foreign country
exports to US are known and allocates demand (by weight) to states based on population (except
for the northeast, where demand is allocated to counties rather than states) which is then
converted to TEUs.
Gao develops a two stage model that determines optimal container fleet size to minimize
continuously). His two stage model first computes least cost flows, then a linear programming
model is used to adjust flows so that supply and demand of containers are equalized. He refers
to other studies that have also modeled fleet sizes (many of which assumed a fixed fleet size and
only look at optimal flows).
Kosior developed a model to compare total cost of ownership (economic + cash) for bulk
handling system vs. container system vs. hybrid bulk/container system while considering
economic costs. His model minimizes total costs which were defined as the summation of :
product costs, terminal costs, inventory costs , transportation costs, material handling costs,
regulatory costs, quality assurance costs, security costs, and ancillary costs; subject to:
conservation of flow and stock at nodal points, carrier policies, terminal storage capacities,
regulatory requirements and constraints, vehicle design limitations, and linkage constraints. He
developed the model as a demand based logistical chain and mapped potential routes backward
from end-user to suppliers (opposite of supply based logistical chains).
6.
Summary and Implications for Design of Spatial Optimization Models
The US ACE/IWR is evaluating whether and the extent and scope of a spatial optimization
model to analyze competition in the container shipping industry. Such a model would be used
for making projections, and to evaluate the impacts of changes in infrastructure during the
projection period. This report seeks to review other studies on container logistics and identify
the current state of knowledge about port constraints and expansion possibilities and costs.
The container shipping industry is a very fast growing sector of the world economy.
Concurrent has been a large number of studies convening varying aspects of this industry. These
are summarized below in groups:
34
Trade and trends in Container shipping: This is very fast growing sector. While the growth rate
has varied through time, generally it can be interpreted to be growing by about 10-11% per year.
North American is a large container market, but, follows both Asia and Europe in terms of total
volume. Further, container shipping is growing much fasted than shipping by other forms of
ocean vessels.
Due in part to this growth, this industry is confronting many challenges. These include
1) pressures for economizing on vertical linkages; 2) port growth, congestion and competition; 3)
new ports and routes; 4) changes in response to larger vessels and shipments; 5) pressure for
more timely shipments; 6) and the escalation in containerization of many new commodities and
products that had previously been shipped in bulk.
Market Structure and Economies of Ocean Carriers: There is growing concentration in the
ocean shipping industry. The top 4 firms have about 39% of the capacity. Even though this has
increased, it is still relatively competitive compared to many other industries.
There is a major trend toward increased vessel size. This has been on-going for a number
of years, but for varying reasons the trend has escalated in recent years. Indeed, by 2010, the
average size ship will be over 7000+ TEUs, in part to the escalation in post-Panamax ships. A
major contributor to this change is the expansion of the Panama Canal which will allow vessels
up to 12,000 TEUs and a draft of 15.7 meters. This contrasts with the current Canal that has a
draft limit of 12 meters and a maximum capacity of about 4400 TEUs.
Port Constraints and Projects Impacting Container Shipping: It is important that many exporters
in the world are gearing up for shipping in larger sized vessels, and concurrent there is a shift
toward larger vessels. As a result of these changes, combined with the persistent growth in
container shipments, a number of ports are becoming constrained and in need of expansion,
dredging or other means to expand throughput.
In response, a number of ports or routes are in the process of expansion. Notable
amongst these are the expansion of the Panama and Suez Canals, new ports at Prince Rupert and
the West Coast of Mexico, and several individual projects at US ports.
Previous Studies on Container Shipping: There have been a number of studies on varying
aspects of container shipping. These include studies on port expansion, pricing, economies of
size and interport competition.
Projections and Methodologies: A few studies have sought to make projections on container
shipments. Some of these are based on expert opinion, others based on extrapolation of trends
and sensitivities. In addition to these, there are several larger-scale efforts to make projections.
These include Clarkson (2007a and 2007b), Drewry (2007) and Global Insight. Clarkson and
Drewry routinely provide emirates 1-2 years forward and these are widely circulated. Their
methodology is not reported but it implies it is based on macro-economic variables and/or expert
judgement. The estimates by Global Insight are also widely cited and referred to in the industry,
35
and these are longer-term. They provide detailed short term forecast to 2008 and a more general
longer term forecast to 2020. This is not at the port level. The basis of their forecasts is based
on historical trade data and the Global Insight World Trade Model. No further detail is
provided.
Spatial Optimization and Simulation Models Several studies have developed spatial
optimization models. It is important that each of these have varying forms of cost minimization
and none address risk. Further, none of these explore the longer-term view of interport
competition.
36
References
American Shipper. 2007. Colonet Port Bidding to Start Before December. American
Shipper+Shippers NewsWire. June 27.
AXS-Alphaliner, as of December 3, 2007 in Journal of Commerce, 2007.
Bennathan, E., and A.A. Walters. 1979. Port Pricing and Investment Policy for Developing
Countries. Oxford University Press for the World Bank, Washington, D.C.
Blonigen, Bruce A. and Wesley W. Wilson. Forthcoming. Port Efficiency and Trade Flows.
Review of International Economics.
Bomba, Michael and Robert Harrison. 2000. An Identification Process and Evaluation
Framework for Texas Gulf Containerships. Center for Transportation Research, Bureau
of Engineering Research, The University of Texas at Austin. Research Report 0-1833-2.
December.
Brooks, Mary. 1993. International Competitiveness-Assessing and Exploring Competitive
Advantage by Ocean Container Carriers. Logistics and Transportation Review, Vol
29(3): 278-293.
Clarkson Research Service, 2007a. Container Intelligence Quarterly, London, various issues.
Clarkson Research Service, 2007b. Shipping Intelligence Weekly, London, selected issues.
Cullinane, Kevin and Mahim Khanna. 1999. Economies of Scale in Large Container Ships.
Journal of Transport Economics and Policy, Vol. 33(part 2, May):185-208.
DiBenedetto, Bill. 2007a. Canada Thinks Big: Pacific Gateways Infrastructure Development is
Keyed to Asian Trade. Journal of Commerce. March 5: 30-34.
DiBenedetto, Bill. 2007b. Tacoma Plans Expansion: Port Steps up Efforts to Acquire Land for
Development of a Container Terminal. Journal of Commerce. June 11: 30-31.
Drewry Shipping Consultants Ltd. 2004. Global Shipping Insight-Forward Thinking on the
China Factor. Drewry Shipping Consultants Ltd. London, England.
Drewry
.
Shipping Consultants Ltd. 2007. Annual Container Market Review and Forecast
2007/08 London, England, September 2007.
Gao, Qiang. 1994. An Operational Approach to Container Control in Liner Shipping. Logistics
and Transportation Review, Vol 30(3): 267-282.
37
Global Insights. 2007. North American Trade and Transportation Data. Accessed July 17,
http://www.globalinsight.com/ProductsServices/ProductDetail1024.htm.
Hackett, Ben. 2003. National Dredging Needs Study of U.S. Ports and Harbors: Update 2000.
DRI-WEFA
Harrison, Robert, Miguel A. Figliozzi and C. Michael Walton. 2000. Mega-Containerships and
Mega-Containerports in the Gulf of Mexico: A Literature Review and Annotated
Bibliography. Center for Transportation Research, Bureau of Engineering Research, The
University of Texas at Austin. Research Report 0-1833-1. May.
Harrison, Robert and Miguel Figliozzi. 2001. Impacts of Containership Size, Service Routes,
and Demand on Texas Gulf Ports. Center for Transportation Research, Bureau of
Engineering Research, The University of Texas at Austin. Research Report 0-1833-3.
December.
Journal of Commerce. 2007. AXS-Alphaliners Top 50 Global Container Fleet Operators,
Journal of Commerce, December 10, P. 20.
Kansas City Southern. 2007. History of the Kansas City Southern.
http://www.kcsouthern.com/en-us/KCS/Pages/History.aspx, Accessed August 10.
Kaufman, Lawrence H. 2007. The Roots of Congestion. Journal of Commerce, March 26, p.
33.
Kosior, Jake. 2004. Demand Chain Modeling Utilizing Logistical Based Costing. PhD
Dissertation. Department of Mechanical and Manufacturing Engineering, University of
Manitoba, Winnipeg.
Kratochvil, John. 2005. Utilizing Inland Waterway, Coastal and Open Ocean Barging of
Containerized Agricultural Products to Overcome Existing Service Deficiencies and
Increased Transportation Costs: Part II. Oregon Department of Agriculture, Portland OR.
Leach, Peter. 2007. Growing, Growing: China Keeps Building New Ports to Handle Expanding
Container Traffic. Journal of Commerce, June 4, pp. 12-18.
Lim, Seok-Min. 1998. Economics of Scale in Container Shipping. Maritime Policy and
Management. Vol. 25(4):361-373.
Luo, Meifeng. 2007. A Container Port Demand Simulation Model for US Container Ports.
Department of Logistics, Hong Kong Polytechnic University, Hung Hom, Kowloon,
HKSAR.
Luo, Meifeng and T.A. Grigalunas. 2003. A Spatial-Economic Multi modal Transportation
38
Simulation Model for US Coastal Container Ports. Maritime Economics and Logistics,
Vol 5(2):158-178.
Meersman, H., E. Van de Voorde and T. Vanelslander. 2003. Port Pricing. Considerations on
Economic Principals and Marginal Costs. European Journal of Transport and
Infrastructure Research. Vol 3(4):371-386.
Mercator Transport Group. 2005. Forecast of Container Vessel Specifications and Port Calls
Within San Pedro Bay. Mercator Transport Group, Bellevue, WA.
Mongelluzzo, B. 2007. Cream of the Crop: Grain exports pour into containers as the dollar
flops and bulk rates soar, Journal of Commerce, pp. 12-15.
Muller, G. 1999. Intermodal Freight Transportation, 4th Edition. Eno Transportation
Foundation, Inc., and Intermodal Association of North America, Washington D.C.
Ng, Koie Yu. 2006. Assessing the Attractiveness of Port in the North European Container
Transhipment Market. Maritime Economics and Logistics. Vol. 8(3, Sept):234-250.
Notteboom, Theo E. 2004. Container Shipping and Ports: An Overview. Review of Network
Economics, Vol. 3(2, June):86-106.
Panama Canal Authority. 2006. Proposal for the Expansion of the Panama Canal: Third Set of
Locks Project. Panama Canal Authority, April 24.
Panama Canal Authority. 2007a. The New Panama Canal: A Better Way to Go. Panama Canal
Expansion: An Overview. http://www.pancanal.com/eng/plan/documentos/propuesta/
acp-expansion-overview.pdf Accessed July 9.
Panama Canal Authority. 2007b. News from the Panama Canal. Panama Canal Authority,
June.
Prince Rupert Port Authority. 2007. Fairview Terminal: Highly Efficient Multi-Use Facility.
Http://www.rupertport.com/container.htm. Accessed Aug 10.
Quijano, J. 2007. The Panama Canal Expansion Program, presentation available at
http://www.pancanal.com/eng/expansion/infoconf2007/presentations/the-panama-canal-e
xpansion-program.pdf
Sivakurmar, Aruna and Chandra R. Bhat. 2000. Freight Modal Split Modeling: Conceptual
Framework, Model Structure, and Data Sources. Center for Transportation Research,
Bureau of Engineering Research, The University of Texas at Austin. Research Report 01833-4. August.
39
Sivakumar, Aruna, Aruna Srinivasan and Chandra R. Bhat. 2001. Freight Modal Split:
Estimation Results and Model Implementation. Center for Transportation Research,
Bureau of Engineering Research, The University of Texas at Austin. Research Report 01833-5. July.
Tioga Group. 2006. Maritime Transportation System: Trends and Outlook. Draft Report #1.
Report submitted to the US Army Corps of Engineers, Institute for Water Resources,
Alexandria, VA. October 23 (under contract with CDM).
Tioga Group. 2007. Maritime Transportation System: Trends and Outlook. Final Report.
Report submitted to the US Army Corps of Engineers, Institute for Water Resources,
Alexandria, VA. March 13 (under contract with CDM).
U.S. Army Corps of Engineers. 2007. Waterborne Commerce of the United States, Calendar
Year 2005, Part 5, National Summaries. Accessed July 18.
http://www.iwr.usace.army.mil/ndc/wcsc/wcsc.htm.
Veldman, Simme J. And Ewout H. Buckmann. 2003. A Model on Container Port Competition:
An Application for the West European Container Hub-Ports. Maritime Economics and
Logistics, Vol 5(2): 3-22.
Wilbur Smith Associates & Transystems. 2007. Regional Intermodal Freight Project. North Dakota
Department of Transportation, Wilbur Smith Associates and TranSystems. August 8.
Wilson, William and B. Dahl, 2008a Review of Previous Studies on Container Shipping:
Infrastructure, Projections and Constraints, ACE/IWR, NETS, forthcoming.
Wilson, William and D.Benson, 2008b Analysis of Container Flows: World Trade,
US Waterborne Commerce and Rail Shipments In North American Markets,
ACE/IWR NETS, forthcoming .
Wilson , William and C. Sarmeinto, 2008c Container Demand In North American
Markets: A Cross-Sectional Spatial Autocorrelation Analysis, ACE/IWR,
NETS, forthcoming.
Wilson, William and B. Dahl, 2008d, Container Shipping: Rail and Ocean Shipping
Rates, ACE/IWR, NETS, forthcoming.
Wilson, William and E. DeVuyst, 2008e, Optimization Models of Container Shipments in
North America: Spatial Competition and Projections (Methodology), ACE/IWR, NETS,
forthcoming.
Wilson, William W., Eric DeVuyst, Skip Taylor, Bruce Dahl, and Won Koo, 2006 Longer-Term
Forecasting of Commodity Flows on the Mississippi River: Application to Grains and
40
World Trade Navigation Economic Technologies (NETS), IWR Report 006 NETS-R12 Dec 15, 2006. available at
http://www.nets.iwr.usace.army.mil/docs/LongTermForecastCommodity/06-NETS-R-12.
pdf
Wilson, William, Eric DeVuyst, Richard Taylor, Bruce Dahl and Won Koo,2007 Longer-Term
Forecasting of Grain Flows and Dely Costs on the Mississippi River, Agribusiness and
Applied Economics Report No. 598, Department of Agribusiness and Applied
Economics, North Dakota State University, April 2007.
Wilson, William W., Won W. Koo, Richard D. Taylor, Bruce L. Dahl, 2008a "Fundamental
Factors Affecting World Grain Trade in the Next Two Decades" forthcoming executive
reference book EVOLVING EXPORT SCENARIO VOL.-II ICFAI Research Centre,
October 2007 .
Wilson, William, Won W. Koo, Richard D. Taylor, and Bruce L. Dahl. 2008b "Impacts of
Ethanol Expansion on Cropping patterns and Grain Flows." Review of Agricultural
Economics.
Wilson, W., B. Dahl, S. Taylor and W. Koo, "Delay Costs and Longer Term Projections for
Grain Flows Shipped on the Mississippi River." Journal of Transport Economics and
Policy, April 18, 2007 JTEP 2229, 2nd round of revisions under review.
41
Appendix: Detailed discussion on Specific Individual Studies

Infrastructure Impacts of Containerships (Including Mega-Containerships) on the Texas
Transport System.
Part 1.
Harrison, Robert, Miguel A. Figliozzi and C. Michael Walton. 2000. Mega-Containerships and
Mega-Containerports in the Gulf of Mexico: A Literature Review and Annotated
Bibliography. Center for Transportation Research, Bureau of Engineering Research, The
University of Texas at Austin. May.
Part 2.
Bomba, Michael and Robert Harrison. 2000. An Identification Process and Evaluation
Framework for Texas Gulf Containerships. Center for Transportation Research, Bureau
of Engineering Research, The University of Texas at Austin. Research Report 0-1833-2.
December.
Part 3.
Harrison, Robert and Miguel Figliozzi. 2001. Impacts of Containership Size, Service Routes,
and Demand on Texas Gulf Ports. Center for Transportation Research, Bureau of
Engineering Research, The University of Texas at Austin. December.
Part 4.
Sivakurmar, Aruna and Chandra R. Bhat. 2000. Freight Modal Split Modeling: Conceptual
Framework, Model Structure, and Data Sources. Center for Transportation Research,
Bureau of Engineering Research, The University of Texas at Austin. Research Report 01833-4. August.
Part 5.
Sivakumar, Aruna, Aruna Srinivasan and Chandra R. Bhat. 2001. Freight Modal Split:
Estimation Results and Model Implementation. Center for Transportation Research,
Bureau of Engineering Research, The University of Texas at Austin. Research Report 01833-5. July.
This is a five part project conducted by the Center for Transportation Research, Bureau
of Engineering Research, University of Texas, Austin. Part 1 is a review of literature, Part 2
develops a model to identify characteristics of ports important for use as a load center, Part 3
evaluates impacts of ship size, service routes and container demand on Texas Gulf seaports, Part
4 develops a logit model to evaluate characteristics important for determining modal splits (rail
vs. truck) where results are presented in Part 5.
42
Luo, Meifeng. 2007. A Container Port Demand Simulation Model for US Container Ports.
Department of Logistics, Hong Kong Polytechnic University, Hung Hom, Kowloon,
HKSAR.
Luo, Meifeng and T.A. Grigalunas. 2003. A Spatial-Economic Multi modal Transportation
Simulation Model for US Coastal Container Ports. Maritime Economics and Logistics,
Vol 5(2):158-178.
These two studies appear to be similar. They developed a spatial-economic, multi-modal
container transportation simulation model for US coastal container ports. The model is used to
price elasticity of demand for port user fees. Cost minimization model used to estimate annual
container transportation service demand for major container ports in the U.S. using a shortest
path algorithm in a dynamic programing problem.
Cullinane, Kevin and Mahim Khanna. 1999. Economies of Scale in Large Container Ships.
Journal of Transport Economics and Policy, Vol. 33(part 2, May):185-208.
They developed model to evaluate tradeoffs between the effects of economies of size
enjoyed on the sea and diseconomies of ship size in port. They estimated elasticities for several
components of operating costs for different sizes of container ships and used these to evaluate
economies of size for a range of container vessels sizes.
Gao, Qiang. 1994. An Operational Approach to Container Control in Liner Shipping. Logistics
and Transportation Review, Vol 30(3): 267-282.
Develops a two stage model that determines optimal container fleet size to minimize
continuously). Two stage model first computes least cost flows, then linear programming model
is used to adjust flows so that supply and demand of containers are equalized.
Brooks, Mary. 1993. International Competitiveness-Assessing and Exploring Competitive
Advantage by Ocean Container Carriers. Logistics and Transportation Review, Vol 29(3): 278293.
This paper analyzes container industry from an industry structure and firm strategy
perspective. She utilizes a framework that looks at five competitive forces: 1) the entry of new
competitors, 2) the threat of substitutes, 3) the bargaining power of buyers, 4) the bargaining
power of suppliers, and 5) rivalry among competitors (Porter, 1980). Discusses each of these in
context of the ocean container industry in the late 80's early 1990s.
Discusses sources of firm competitive advantages: 1) cost containment and asset
utilization, 2) Services, 3) Agency Networks, 4) Access to capital, and 5) Vertical integration
into Input supply. Further discusses sources of competitive disadvantages: 1)Loss of market
43
identity and 2) service homogeneity. Goes on to discuss strategies to exploit competitive

advantage: 1) Cost Leadership, 2) Focus Strategies, 3) Service Differentiation, 4) Sustaining
Competitive Advantage.
Ng, Koie Yu. 2006. Assessing the Attractiveness of Port in the North European Container
Transhipment Market. Maritime Economics and Logistics. Vol. 8(3, Sept):234-250.
Surveyed top 30 shipping lines to determine attractiveness of ports in North European
Transhipment Market. Respondents were asked to assess several characteristics of attractiveness
for ports and rank responses on a 0-5 scale. Then they were asked assess these factors for
several specific ports and to rank these on a -3 to 3 scale.
Veldman, Simme J. And Ewout H. Buckmann. 2003. A Model on Container Port Competition:
An Application for the West European Container Hub-Ports. Maritime Economics and
Logistics, Vol 5(2): 3-22.
They develop a logit model to explain market share of a ports routings for each of traffic
zones or regions. Explanatory variables include transport cost, transit time, frequency of service
and indicators of quality of service. They use logit model to determine routing choice and derive
a demand function. The demand function they note could be used for port traffic forecasting and
for evaluation of container port projects. Model evaluates West European Container Hub Ports
as example.
Uses results from logit model to forecast effects comparing 1) low cost, low quality
routing to high cost, high quality routing, 2) evaluates effect of change in port recovery costs of
market shares of major North Sea container ports and 3) assesses market shares as a function of
changes in generalized costs of project at Rotterdam.
Unsure what he finds in case 1 (appears to point to another paper in summary). In case 2
finds small changes in market shares of ports (3.2% Rotterdam, 1.2% Antwerp, -4.3% Bremen
and -4.2% Hamburg). In case 3, they found increasing costs of using Rotterdam by Euro 27/
TEU halved container market shares for Rotterdam.
Models ports as node in transportation system. They develop a logit model to explain
market share of a ports routings for each of traffic zones or regions. Explanatory variables
include transport cost, transit time, frequency of service and indicators of quality of service.
They use logit model to determine routing choice and derive a demand function. The demand
function they note could be used for port traffic forecasting and for evaluation of container port
projects. Model evaluates West European Container Hub Ports as example
Their model estimated routing choice with respect to continental hinterland regions as a
f(change in costs, change in costs by distance from port, change in market share hub-port,
change in market share hub-port by distance from port, dummies for Rail, IWT ant IWT
Rotterdam-Antewerp). They further estimated routing choice with respect to overseas hinterland
44
regions as f(change in costs, change in costs by distance from port, change in market share hubport).
Uses results from logit model to forecast effects comparing 1) low cost, low quality
routing to high cost, high quality routing, 2) evaluates effect of change in port recovery costs of
market shares of major North Sea container ports and 3) assesses market shares as a function of
changes in generalized costs of project at Rotterdam.
Unsure what he finds in case 1 (appears to point to another paper in summary). In case 2
finds small changes in market shares of ports (3.2% Rotterdam, 1.2% Antwerp, -4.3% Bremen
and -4.2% Hamburg). In case 3, they found increasing costs of using Rotterdam by Euro 27/
TEU halved container market shares for Rotterdam.
Notteboom, Theo E. 2004. Container Shipping and Ports: An Overview. Review of Network
Economics, Vol. 3(2, June):86-106.
This paper reviews recent trends impacting the container shipping industry and container
ports. Paper focuses on several aspects of economic theory including market structure, firm
structure, strategic planning, economies of size, impacts of congestion (port, inland, etc.),
interport competition, etc.
Kosior, Jake. 2004. Demand Chain Modeling Utilizing Logistical Based Costing. PhD
Dissertation. Department of Mechanical and Manufacturing Engineering, University of
Manitoba, Winnipeg.
Kosior reviews literature on bulk vs. container shipping trends, costs, etc. Then develops
a model to compare total cost of ownership (economic + cash) for bulk handling system vs.
container system vs. hybrid bulk/container system. Model was set up to minimize total costs
which were defined as: product cost + terminal costs + inventory costs + transportation costs +
material handling costs + regulatory costs + quality assurance costs + security costs + ancillary
costs, subject to: conservation of flow and stock at nodal points, carrier policies, terminal storage
capacities, regulatory requirements and constraints, vehicle design limitations, and linkage
constraints.
Mercator Transport Group. 2005. Forecast of Container Vessel Specifications and Port Calls
Within San Pedro Bay. Mercator Transport Group, Bellevue, WA.
This is the summary of a detailed analysis for ports of Long Beach and Los Angeles
(ports located in San Pedro Bay of California) to forecast future container vessel activity levels
(to 2020). Report reviews historical trends from 1990 to 2004, estimates short term impacts
2005-2007 based on trends, then develops longer term forecasts for 2008-2020 while considering
fundamental drivers impacts of vessel sizes, operating costs, capacity constraints a major ports,
changes in liner structures, panama canal and forecast levels of container trade.
45
They forecast increased consolidation in industry from current structure where 5 alliances
handle 70% of capacity to 6-8 alliances handling 95%. They indicate cost savings for 8000 TEU
vessel on Asia-NA trade route reduced vessel costs by $99/TEU over a 4500 TEU vessel. A
10000 TEU vessel would further reduce costs over 8000 TEU vessel by $52/TEU. Indicates that
container vessels will max out for US West coast at 12000 TEU by 2020. This is due to there
being increasing scale economics for ship sizes above 12000 TEU because a change in ship
technology is required. These diseconomies arent offset till ships achieve 14000 TEU or larger.
Ports in Asia and NA are not expected to impede ships up to 12000 TEU. Several Asian ports
can now, are developing terminals that can accommodate 10000 to 12000 TEU vessels. North
American ports other than SPB that can handle these size ships include: Prince Rupert,
Vancouver, Seattle, Tacoma, and Lazaro Cardenas, however all others would require
improvements to rail yards and lines to handle train volumes required with these larger ships.
Notes on East Coast, only Halifax and Hampton Roads have adequate channel and berth depth
for 10000-12000 TEU containers. They indicate impact of Improvements in Panama Canal
would likely shift some large container moves to East Coast of US from Asia, but shift smaller
Panama Canal traffic (4000 TEU) to SPB. Net effect would be insignificant.
CDM on behalf of The Tioga Group. 2006. Maritime Transportation System: Trends and
Outlook. Draft Report #1. October 23.
This is an outlook paper focused on the U.S. Maritime Transportation System. They
report on several trends (economies of size, port trends, capacity constraints, growth in load
centers, interport competition, degree of commoditization, etc.) and reports on DRI-WEFA
forecasts for 2010 to 2050. DRI-WEFA indicated U.S. containerized trade has grown at an
average annual rate of 6.3%, with fastest growth at Pacific Coast Ports (67.8% annually),
followed by Atlantic Coast Ports (55%) and Gulf ports (5.4%). They predict slightly faster
growth in near term, returning to trends from 2010 to 2050.
Global Insight. 2005. Trends in the World Economy and Trade, Third Quarter 2004 Forecast.
Global Insight. http:www.globalinsight.com. January.
This document presents results of proprietary short term (to 2008) and longer term
forecasts (to 2022). Forecast is for world shipping trade where container market is a sub
component of world shipping trade. The forecast increases in total container trade from 56
million TEUs in 2000 to 150 million TEUs by 2022.
Kratochvil, John. 2005. Utilizing Inland Waterway, Coastal and Open Ocean Barging of
Containerized Agricultural Products to Overcome Existing Service Deficiencies and Increased
Transportation Costs: Part II. Oregon Department of Agriculture, Portland OR.
This study evaluates the cost of a short sea alternative serving Alaska and Hawaii from
PAW ports/inland barge system. They pose this as an alternative to the increasing trend for
ocean shippers to move containers to U.S. from Asia (80% capacity vs. 40% capacity for return
shipments) and prefer to have empties shipped back to Asia as quick as possible to carry higher
46
value product to the U.S. rather than shipping agricultural products to Asia. They indicate that
the difference in revenue to an ocean shipper can be 3 to 5 times higher for eastbound (Asia to
U.S.) shipments over westbound (U.S. to Asia) and is resulting in increased container ship sizes
with larger ships moving to alternative ports.
They developed an extensive cost model of a short sea alternative serving Alaska and
Hawaii utilizing Articulated Tug/Barge shipping of grains. Results indicate lower cost of
operation, however, no barge operators were willing to adopt the new service. Trend is for lower
movement of containers at PAW ports.
47

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Review of Previous Studies on Container Shipping:

Infrastructure, Projections and Constraints

Trade and Trends in Container Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Constraints and Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Issues Confronting Container Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Economies of Size of Ocean Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Changes in Container Vessel Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Port Constraints and Projects Impacting Container Shipping . . . . . . . . . . . . . . . . . . . . . 15

Major Projects Impacting Container Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Previous Studies on Specific Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Projections and Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Spatial Optimization and Simulation Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Review of Previous Studies on Container Shipping:

Summarize results of a kick-off meeting and presents results of a literature review

Table 2.2. U.S. Container Trade by Region, 2000 to 2050

Volume of Trade (Million Metric Tons)

Asia to North America

North American to Asia

Paper, Paperboard, and Products

Cork and Wood

Other Manufacturing, nec.

Furniture and Fixtures

Parts of Motor Vehicles

Non-Metallic Products, nec.

Iron and Steel

Source: Hackett (DRI-WEFA).

interchange and use).

Major Issues Confronting Container Shipping

Mediteranean Shipping Co.

CMA CGM Group

Total (Top 50)

Source: AXS-Alphaliner, as of December 3, 2007 in Journal of Commerce, 2007.

3.2 Economies of Size of Ocean Shipping

Source: BRS Alphaliner Fleet Report, 2003

and is projected to be 3520 by 2006 (Figure 3.2.1).

1367 1340 1292

Source: Containerisation Internation, From CDM, Tioga Group.

Figure 3.2.1. Container Vessel Deliveries: Average TEU/Vessel.

Table 3.3.1 Containership Evolution

Typical Capacity (TEUs)

Typical Length (ft)

Source: Harrison et al, citing Muller.

Source: Hackett (DRI-WEFA).

Source: Herbert Engineering Corp. as cited in Mercator Transport Group.

Port Constraints and Projects Impacting Container Shipping

Source: ACP 2006 and Quijano (2007)

There are several other U.S. planned expansions still being

Houston: a 1.4 million container Bayport terminal expansion;

Previous Studies on Specific Issues

elasticities would be higher.

size was fixed and only look at optimal allocations.

Table 5.1.2. Allocation of Ship Operating Costs at Sea and In

Projections and Methodologies

A range of studies employing different methodologies have been utilized to forecast

5.3.1 Growth Rates of Four Major Service Types - Ocean Freight

5.4. Spatial Optimization and Simulation Models

Summary and Implications for Design of Spatial Optimization Models

Appendix: Detailed discussion on Specific Individual Studies