Are Ships Getting Too Big? Suezmax and Economies of Scale in Global Shipping

Trade boat carrying containers and arriving at the portThe Ever Given ship that blocked the Suez Canal for six days has captured the world’s attention and many are wondering about the impact on global trade. But there are just as many wondering how it got stuck in the first place. Navigational error? High winds? Inadequate dredging? Or most intriguingly… too big?

It’s clear that freighters and cruise ships have gotten larger as shipping and cruising corporations try to take advantage of economies of scale. They push the limits, building ships to the maximum size allowed by authorities responsible for the waterway they wish to transit. They call these megaship sizes Suezmax (Suez Canal), Seawaymax (Saint Lawrence Seaway), Panamax (Panama Canal), and so on.

For their part, canal operators have sought to get bigger, but these expansions are often associated with increased ship size limits. For example, the expanded Panama Canal, which opened in June 2016 after about a decade of work that began in 2007, enabled the creation of a new size class: New Panamax. The expansion drove infrastructure spending at a number of East Coast ports constrained by the old Panamax ship size, including the Port of Baltimore, the Port of Miami, and the Port of New York and New Jersey. Such ports improved their capacity to accommodate the larger ships and increased container cargo traffic that would likely result.

Similarly, the operators of the Suez Canal invested in a new channel and dredging, completed in 2015, to ensure it could handle more traffic and larger ships.

For any water port, canal, or inland waterway – such as the US’ Mississippi River System – investing in ongoing maintenance and dredging is essential to ensure the smooth passage of traffic. As local, regional, and global economies and trade activity grow, the movement of goods drives higher waterborne freight traffic because it is typically the most economical freight mode. Growing waterborne freight volumes create pressure for shipping firms to invest in larger barges and ships to capture economies of scale as intense competition in the waterborne freight industry exerts downward pressure on shipping rates. However, this intensifies the need for waterway authorities to invest in maintenance and dredging to ensure the smooth flow of traffic.

In December 2020, the US Congress passed a $10 billion water infrastructure bill, investing in inland waterways and ports. The infrastructure bill currently being considered by the US Congress could include funds for waterway investment, ensuring that US waterways and ports remain navigable and useful.

Want to Learn More?

We have you covered! For additional information and analysis of US industry trends, see Freight by Waterway: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group.

Freight by Waterway: United States forecasts to 2021 and 2025 US freight by waterway revenues for employer and nonemployer establishments in in nominal and real (inflation-adjusted) dollars. Total revenues in nominal and real terms are segmented by establishment type in terms of:

  • coastal and Great Lakes
  • deep sea
  • inland waterway

Revenues for water transport support activities are also forecast to 2021 and 2025, and provided for the 2010-2020 historical period. Total revenues in nominal terms are segmented by establishment type in terms of:

  • marine cargo handling
  • navigational services to shipping
  • port and harbor operations
  • other support activities

Total revenues for the US freight transport industry for the 2010-2020 period are also provided and segmented by mode as follows:

  • truck
  • rail
  • pipeline
  • water
  • air

The scope of this report includes the revenues of for-hire water transport firms, as well as for-hire fleets that are dedicated to a particular client. Captive water transport services (i.e., businesses that maintain their own boats, ships, or barges to transport company goods or employees) are excluded.

While you’re there, check out our related reports, which include:

About the Author: Leon Mengri is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, which offer concise overviews of market size, product segmentation, and business trends.

Topics: Transportation & Shipping Industry Insights The Freedonia Group