Reflections On Speed Of Container Freight And The Real Costs Of Faster Speed (Economic, Carbon & Congestion)

Malcom McLean, the inventor of containerization and one of the greatest transportation thinkers of all time, had an overriding focus on the cost of moving freight from one point to another. He knew well the basic cost gap between various transport modes and would never favor a higher cost mode when a lower cost mode was available. Indeed, the very invention of containerization by the person who had built the most cost efficient trucking company in the country was in recognition of that fundamental fact.

It’s axiomatic that the direct economic cost of transport goes up as speed increases. This is true both across modes and within modes. Across modes, there is a geometric relationship between speed and cost. Within modes, its not as pronounced but cost still moves up as speed increases. This is related to the physics of friction and resistance along with energy consumption. Keep in mind that cost is the underlying cost to provide the specific service and not the price charged for that service. Price is fragile and amorphous, while cost is solid and more definable.

The table below shows a broad overview of the four basic transport modes for moving freight, moving from water as the lowest cost to air as the highest cost. The two land modes of rail and truck are between those two extremes. The relative cost for each mode is shown as a multiple of the lowest cost water mode. The speed shown is typical while actually in service between points, with the percent of total time around the clock spent moving between points also shown. The relative cost is based on total linehaul costs while in service, excluding any setup costs on either end such as the costs of loading or unloading with the water and rail modes. This comparison was developed based upon how each mode is now operating in the U.S. The broad differences in these domestic freight movements are similar to what occurs internationally, except that when the comparison narrows (such as between large container ships and doublestack rail) the relative underlying linehaul cost gap widens.

Source: Giants Of The Sea, Chapter 20 Shipping versus Other Transport Modes, Page 229

As the table shows, moving through the various modes from slowest to fastest, the percent of time that mode is actually moving between points decreases. This is driven by several factors, key among them typical distances, hours of service restrictions and time involved in setup activities at each end. These factors tend to compress the effective average speed differences between the modes. They do not change the relative ranking, but they do bring to mind analogies with the story of the tortoise and the hare. In the example focused on below, the tortoise doesn’t actually win the race from a time or average speed standpoint, but it wins big in terms of economic cost, carbon emissions and port congestion.

What Cost Speed For Transpacific Containers?

A relevant and timely example of the cost of speed related to freight is the movement of containers from Shanghai to New York. The quickest container movement between those points is referred to as an intermodal move, with the container going by ship to the West Coast and then across the country on a doublestack unit train. Alternatively, that container could go the entire way by ship with a much longer voyage via the Panama Canal. Between the fact that trains are faster than ships and the intermodal move involves less total distance, the all water movement inevitably takes longer. Because China is the origin for 43% of the inbound containers coming into the U.S. and the final destination is broadly aligned with population, the overall Shanghai to New York freight lane is one of the largest in the world.

In addition to being a timely example, it brings to mind an actual situation in the mid-1980’s involving Malcom McLean’s Econships, then the largest in the world by some 30%. Deployed in an eastbound round the world service by U.S. Lines while maintaining its membership in rate setting conferences that were allowed then, Malcom railed at the conference insistence that rates for loads going to New York be the same whether moving via intermodal or on slower all-water services. Malcom reasoned that the former was a premium service involving higher costs for the carrier that should be reflected in the rate. He was of course accurate, but he didn’t prevail and this was one of several efforts driven by competitors to blunt the efficiency of the Econships. The point then and now is that rates and pricing are different from underlying cost. The former are fungible and variable based on a host of factors while the latter are factual and fixed at any given point in time. This example will focus solely on the more meaningful and concrete underlying costs that must be absorbed by someone.

A 40’ container can be moved from Shanghai to New York using intermodal rail service from Los Angeles to New York in 16.9 days, a 7.6 day and meaningful 31% time saving compared to the 24.5 days it would take for an all-water movement. The time difference would be even higher if Seattle was used, but Los Angeles is the largest West Coast port with the most outbound rail intermodal movements. However, that speed benefit comes from the intermodal routing that results in $1,310 of additional costs. To put that difference in perspective, linehaul costs are 159% higher and the total cost of the items affected by the routing are 206% higher. In addition, carbon emissions are 207% higher and increased congestion that isn’t readily calculable but is 12 to 65 times higher based on two relevant measures. The respective costs and differences between the two routes are outlined in the table below. A detailed worksheet is available upon request showing how each figure in the table was developed.

Note that the cost comparison above focuses just on the different linehaul costs from the routing decision along with the cost of rail loading and unloading the container at each end and the related terminal costs that arise as a result of the intermodal route. The example ignores the vessel segment loading and unloading and related terminal costs, which in total are more than twice the rail segment due to larger and more complex terminal operations, as they are not affected by the routing decision. If additional costs were layered in, the percentage difference would be less, but the absolute difference of $1,310 per 40’ container would remain constant. Linehaul costs includes the total operating, fuel and capital cost of running the respective mode exclusive of any setup cost at either end and is fundamentally a linear cost per load per mile.

The current linehaul cost of a 14000 TEU container ship are estimated to be equivalent to 5.22 cents per loaded 40’ container mile based on 75% overall utilization. The same measure for a doublestack unit train is 7.79 times higher at 40.66 cents per loaded 40’ container mile, also based on 75% overall utilization. That variable per mile cost contrasts with various setup costs at each end involved with all modes except for truckload. While the truckload mode has a notably higher linehaul cost per unit mile, it has no meaningful setup costs at each end.

Prior to determining the tradeoff between the benefit of speed and its related costs in the above example, a threshold question needs to be asked.

Who Pays Those Costs?

The Walmarts, Home Depots, Targets and other shippers get the benefits of speed but they certainly don’t pay all of the ECC (Economic, Carbon & Congestion) cost differences that produce that speed. It some cases they might not be paying some or the entire underlying differential in economic cost to get the premium, speedier intermodal service. The current rate environment in container shipping is hardly typical with the carriers having more pricing power and leverage than they ever had. But in the more typical times following the financial crisis of 2008, the container shipping industry operated with chronic over-capacity where all the leverage resided with the shipper. In those situations, it wouldn’t be unusual for a large shipper to have a contract rate from a carrier based on all-water service to New York and to use that to get the same rate from another carrier for premium, speedier intermodal service. In those cases, the shipper isn’t even paying for the E in ECC as the carrier is in effect absorbing the incremental cost. Note that the focus here and in the table is on the underlying differential in economic costs. Vessel cargo handling and terminal costs, local pickup and delivery costs and an array of fixed costs ranging from container equipment to SG&A are not included in the table as they are the same regardless of whether the container load moves intermodally or all-water.

The CC in ECC is easier to peg in terms of who pays. None of those costs are borne by the shipper and everyone else absorbs them. While shippers do in effect pay for the fuel related to their load, if they are using the intermodal route that higher cost has not deflected their quest for speed. If something they directly pay for does not have an impact, it isn’t surprising that something they don’t pay for in the form of carbon and other emissions would also not have any impact. Not only is the 207% increase in emissions above the cost increase, but where the emissions occur make the environmental impact of the speedier route even more pernicious.

While where carbon emissions occur isn’t particularly relevant as they all contribute to atmospheric warming, the impact of other smog causing emissions from fuel are more location specific. With the intermodal route, those nitrogen oxide and particulate matter emissions will occur on land, including in areas of high population along the train route, while with the all-water route those same but lesser emissions will occur at sea away from populated areas. Highlighting that most of the carbon and other emissions on the intermodal route occur over land, if you exclude the Shanghai to Los Angeles leg and just compare the balance of the routes, the incremental increase in carbon and other emissions is 450%. Looked at another way, if container movements that previously used the intermodal route were switched to the all water route, it is an immediate 82% reduction in carbon emissions on that leg even after the longer all-water distance is factored in. For shippers looking to reduce their carbon emissions, there is no situation that offers such an immediate benefit even while it offers the prospect of reducing economic cost on that segment by more than half.

The benefit to port congestion in Los Angeles that has been at the top of the news recently would be the most material difference from such a switch. A container load that never even goes through Los Angeles can’t possibly contribute to congestion there. Given the news reports of the flow through affects of that congestion on businesses and consumers across the nation, it will be a widespread group that benefits from less port congestion in Los Angeles that would accompany such a switch. Beyond that macro benefit, there would also be benefits to congestion in states that doublestack unit trains roll through. Think of the hundreds of railroad crossings across the country that are affected as these trains move eastward and then return. The collective time of motorists waiting at railroad crossings that wouldn’t occur if the all-water route were used more is significant.

While the macro benefit from less port congestion in Los Angeles is incalculable as the comparison is to a zero case, there are a couple of metrics that can be utilized to measure the benefit from less congestion on land. Those measures take into account that both the intermodal and all-water routes will include a 50-mile local delivery move by truck on the New York destination side. Based on the metrics of states the loads move through and total land miles, the intermodal route is 12 and 65 times more onerous, respectively, than the all-water route. Eleven states have nothing to do with, nor any economic ties to, the containers that move across thousands of miles of rail with the intermodal route. In light of their obtaining no benefit, it is ironic that people living along the intermodal route are paying the secondary congestion cost of that container freight. That is in addition to the emissions cost being absorbed by those same people from container freight that is just passing through their area.

The Benefits Of Speed

The main justification for moving container freight faster with the higher underlying economic cost that will result in is the belief that the difference will be made up by lower inventory costs in the broadest meaning of that term. The broad area of inventory cost management has been a key mantra of business over the last several decades. That has resulted in an array of strategies to reduce it by minimizing inventory and pushing it back to suppliers wherever possible. Concepts such as lean manufacturing and just-in-time supplier deliveries have come out of what can appropriately be called an obsession by many businesses in reducing total inventory costs. As inventories have generally become lower at all levels, this by itself has had the tendency to increase the importance and often the speed at which freight moves.

Inventory costs include ordering costs, the cost of storing inventory, shortage costs, spoilage or out of date costs and inventory carrying costs. The first two are typically included in overhead and relatively small amounts. The next two are generally related to having too little or too much inventory. With too little inventory, products aren’t available for sale. With too much inventory, products can deteriorate or go out of fashion. Both of those potentially material financial events are related to planning and it isn’t clear that freight speed per se is the best way to address those potential costs.

The last of the five types of inventory costs is an item that can be readily calculated and that is directly reduced by faster speed. Inventory carrying costs is the cost a company has to finance and hold inventory on its balance sheet. In addition to often being a material number by itself, related ratios such as sales to inventory and its level and trend are scrutinized by analysts. In some circles that tangible metric is viewed as a measure of efficiency across the entire organization. The constant focus on tightening inventory, minimizing reserves viewed as unnecessary and having little if any excess capacity has turned inventory considerations into a factor that often drives freight decisions. All of this goes into the incredible corporate focus on inventory costs, which itself has had a very pronounced affect on the entire transportation industry over the last several decades.

Inventory carrying costs are calculated starting with the value of the products in the container and multiplying by a capital cost factor. Rather than using the interest rate a company pays on any borrowings, an even better factor is the return the company could expect from otherwise deploying that capital which would typically be higher. In the example of a 40’ container moving from Shanghai to New York, the total product value is estimated at $75,000 and the capital cost factor is estimated at 10%. Many will note that both amounts are on the high side but this type of inventory cost shouldn’t be understated. In this case, that works out to an inventory carrying cost of $7,500 per year, which is the equivalent of $20.55 per day. The example has the all-water route taking 7.6 days longer, resulting in total incremental inventory carrying costs of $156. That is the only additional inventory cost that can be directly attributed to using the slower all-water route compared to the faster intermodal route. There is actually no added cost of leasing warehousing space because the additional time occurs while the product is stored in container equipment provided by the carrier. As an aside, such leasing costs for all the products in a 40’ will typically run in the $8 per day range. In summary, the only readily calculable benefit of the 7.6 day faster transit time in the example is $156. When that is compared to the incremental direct economic cost of $1,310 for intermodal service instead of all-water service, it is equivalent to only 11.9% of the higher cost. Looked at another way, a 40’ container would have to be moving products worth almost $1 million before the 7.6 days faster transit could be justified purely based on lower inventory carrying costs. Such a container is an extremely rare load. Even a refrigerated container filled with frozen shrimp, viewed as a particularly high value load across transport sectors, typically comes in at less than half that value.

What proponents of faster route will undoubtedly say is that this analysis fails to take into account the larger potential inventory costs of either having too little inventory or too much inventory and they will claim speed is a key tool in managing both. With a product value of $75,000 per container, it doesn’t take a significant assumption in terms lost sales from not having enough inventory or a write-off due to having too much inventory. After all, the $1,310 higher cost is just 1.7% of product value. However, unlike inventory carrying cost, which is a precisely calculable figure, estimating these other types of potential inventory costs are subjective and really conjecture. In too many situations, the risk of one of these types of inventory cost is rationalized as a reason to justify speedier transport. That would particularly be the case in the example where 7.6 days of time can be bought for $1,310. When that is carefully scrutinized, however, it looks more like a rationalization as it is hardly supported by an objective review of the facts. That decisions made to go with the intermodal routing more often than is justified by the facts is one reason freight professionals are known to often refer to just-in-time inventory as just-in-case inventory.

One of the first things to realize is that the time focused on in the example is just a small part of the overall time involved in a product movement. While all of those events add the same amount of time whatever routing is selected and the 7.6 day absolute difference is maintained, the percentage difference declines as these real world events are layered in. From placing an order for the product to having it manufactured and moved to the export terminal waiting to be initially loaded can readily add 60 days to the front end of the supply chain. Going from 84.5 days to 76.9 days where the same 7.6 days saved is just 9.0% before it reaches the domestic supply chain begins to look skinny in terms of the tangible additional freight cost increases that come with it.

When engaging shippers in granular conversations about container freight transit time, terms like predictability and consistency are often used to justify speedier movements. There was a time when slower modes were also less predictable modes, but that has significantly dissipated with greater use and appreciation for schedules across all modes, particularly the rail and water modes. Putting aside the recent past with the well-reported supply chain issues that has disrupted schedules across modes, both doublestack rail and container shipping have schedules that typically can be counted on. Carriers have recognized the premium shippers place on consistency and they generally build schedules with enough slack time so that even if they encounter weather, the ship will arrive in port at the scheduled time. The advent of better shipment tracking and information systems have further improved on the predictability and consistency of shipments across modes, particularly the slower modes.

In the case of the example of containers moving from Shanghai to New York, when the entire time involved from ordering the product to putting it into domestic supply chains is considered, it strains credibility to think that a 7.6 day time difference could have a material impact of either having too little inventory or too much inventory. In fact, a case could even be made that thinking it may be able to could have the effect of limiting the detailed analysis and planning that should go into what is ordered and when that is typically the main determinant of these tangential inventory costs. If the conclusion is that in the example the slower all-water route simply results in slightly more inventory in transit, something supported by the objective facts, then the calculable inventory carrying cost is the only adverse impact from that additional time. As this example shows, the underlying economic cost savings are exponentially more than that modest additional inventory carrying costs. Similar comparisons of other transport situations will almost always show the same result.

When the subject of speed of freight is discussed, the penultimate speed of air needs to be recognized. At the risk of raising the ire of many, moving freight by air can almost never be justified based on cost. People need air transport, freight doesn’t. The luggage people need, documents and emergency replacement parts can make economic sense but little else on a consistent basis does. Reasons related to security, prestige or product shelf life may make the choice seem reasonable, but it will always come with an underlying economic cost so high that transport cost simply can’t be a primary consideration. When costs are a primary consideration, freight will always move on another mode. This is an observation borne out by the actual data.

When the 15% of international trade moving by land, mostly in Europe and North America, is excluded the balance must move either by water or air. Of that total amount of international trade, air transport represented just 0.23% of total ton-miles while ships handled the remaining 99.77% of ton-miles. If the freight moved by air is compared just to the freight moved by container ship, air ton-miles move up to 1.38% but 98.62% of ton-miles are still handled by container ships. Even when the comparison is based on value-miles rather than ton-miles, air is only 13.65% while container ships are 86.35%, reflecting the almost ten-fold difference in the value per pound of products moving by air compared to container ship. There was a time in the major freight modes where there were widely varying rates based on product value, but today freight is primarily priced based on its weight and cubic foot capacity. From a freight perspective, air is a quaint mode but one that has little applicability in situations where cost matters. To the extent that the word freight can be defined as something added to the cost of a product, an overriding interest of everyone should be to minimize that cost and air transport of freight plays no role in that equation.

Ideal Distribution Of Inbound Containers

The distribution of inbound containers into the U.S. by coast has been distorted by a number of factors, key among them the advent of doublestack train service in the 1980’s. Going back to the situation then where the conferences established the same rate for containers moving to various East Coast points whether they moved by the speedier intermodal route or the slower all-water route, its not surprising that most shippers chose the former. Because Asia was the largest origin for containers, the West Coast became the entry point for some three-quarters of all containers, with many of those moving across the country to other regions. By 1998, there had been a gradual shift and the West Coast represented 66.3% of total inbound containers at the Top 10 U.S. ports. Note that those ports represent some 90% of total inbound containers. With most of the smaller ports on the East and Gulf Coasts, the overall statistics would bring down that West Coast percentage slightly.

The coastal shift away from the West Coast continued and by 2016 it represented 56.8% of total inbound containers at the Top 10 U.S. ports, an average annual decline of 53 basis points since 1998. With the opening of the expanded Panama Canal and the more than three times larger container ships that allowed, the shift accelerated. In 2020, 52.9% of the inbound containers at the Top 10 U.S. ports came in through the West Coast, an average annual decline of 98 basis points since 2016. When the smaller container ports are taken into account, the current distribution is something in the 48% range for the West Coast with the 52% balance on the East and Gulf Coasts. This gradual coastal shift can be expected to continue for some quite some time.

Despite the relative shifts away from the West Coast that have already occurred with inbound containers, from an ECC cost standpoint there are still way too many loads that come in through those ports. To put a fine point on it, the West Coast ports are the gateway for twice as many containers compared to what an ideal distribution would look like. That ideal distribution comes from allocating the population of each state on the mainland to the coast it is closest to supports that conclusion. The final destination of inbound containers is broadly correlated with where people live. Based on the relative costs across modes, in almost every case the lowest ECC cost will result from a movement by water to the major port closest to the final destination followed by a rail and/or truck movement to that destination. The following table shows that current population distribution by coast with the 24% closest to the West Coast representing half of the 48% of inbound container that now arrive via that coast.

Note: Florida representing 6.4% of total is allocated to East Coast based on location of its largest ports

An even more refined population distribution by county could be prepared, but the results would be largely consistent with the distribution above. To reinforce the claim that the ultimate destination of inbound containers correlates with where people live, a similar breakdown of distribution center square feet at the largest retailers would be a useful confirming exercise. Similarly, algorithms based on the relative economic costs of each mode will prove that the lowest such cost will almost always come from the major port closest to the destination point. In all cases the lowest economic cost will also result in the lowest carbon and congestion cost, although separate algorithms could also be developed to quantify the last two factors in the overall ECC equation. In most cases, the reduction in those two factors will be even more pronounced than the reduction in economic cost.

The pace of the shift of inbound containers away from the West Coast will pickup as more attention is focused on both the carbon emissions related to transport and ways to allay the widely reported congestion at Los Angeles and Long Beach. Shipper routing decisions related to the latter have resulted in West Coast ports representing 51.0% of the inbound containers at the Top 10 U.S. ports in the three months ending September. That works out to an annualized shift of 253 basis points, more than two and one half times the actual average annual shift from 2016 through 2020.

Ports in the East and Gulf coasts, in addition to being more cost-efficient gateways for containers moving to those regions, have more additional existing capacity compared to West Coast ports. They include new modern new terminals built in Charleston and Jacksonville. New terminals and ports will need to be built and there are more opportunities for both on the East and Gulf Coasts. While an ideal distribution of inbound containers would alleviate the congestion problems plaguing ports if overall volume stayed at current levels, that is not the case as volume will continue to grow.

At the 3.0% inbound volume growth rate it experienced from 2015 through 2020, Los Angeles will double its volume every 23.3 years. That actual growth rate doesn’t even include the much higher growth rate it experienced in 2021 and is also well below almost all of its longer-term volume growth measures. With the 3.6% inbound volume growth rate for all Top 10 U.S. ports from 2015 through 2020, total volume will double every 19.5 years. In addition to the new terminals and ports this will require on the coasts, the way existing terminals are operated needs rethinking. The best answers go back to the way terminals were operated in the early days of container shipping, with a key adaptation to take into account the extraordinary growth in volume over the decades.

The ideal terminal situation is that when not on a ship, a container is always sitting on a chassis in what is known as a fully wheeled operation. As containerization grew, most ports had no land to expand outwards and began stacking containers. Those stacks add steps to the process both at the beginning and the end and as they grow in height, the steps involved particularly in recovering a specific container expand. Think of it as similar to a Rubik’s Cube; as each gets bigger, the actions needed to solve grow geometrically. Volume across most U.S. ports will double within the life of the container ships calling on them now. The answer can’t just be to stack boxes higher and in some cases many of those stacks are already as high as they should be.

Among the things that must be focused on is direct discharge to double stack trains that shuttle out whatever miles are needed to get to open land where large new parking lots big enough to accommodate the preferred fully wheeled operation can be located. This is not only the case for Los Angeles and Long Beach, but also any port that is penned in and unable to grow outward. A framework like that fundamentally takes steps out of the process and results in new inland terminals whose capability to be efficiently expanded is virtually unlimited. Among other things, with containers always on chassis at these inland terminals, the interface with truckers is streamlined and much more efficient compared to an appointment to pickup a container that may or may not have been retrieved from whatever stack it is buried in.

An October 12 article I wrote titled “Time To Strengthen Our National Maritime Strategy With Tangible Goals And Initiatives” is a white paper on steps that can be taken to grow the U.S. flag merchant marine. The key commercial initiative outlined in the article to grow the international U.S. flag merchant marine was an express transpacific weekly service between China and the West Coast exclusively using 53’ containers. See full article via this link: https://medium.com/@john-d-mccown/time-to-strengthen-our-national-maritime-strategy-with-tangibles-goals-and-initiatives-99cb42a5d0d2. As detailed in the white paper, the cost and time savings from taking the now unneeded transloading step out of the process would give such a service a competitive cost advantage despite higher U.S. crew costs. Transloading is where the contents of three 40’ containers are unloaded and reloaded in two 53’ containers to fit with how freight moves domestically in the U.S. The cost and time of such transloading is deemed to be less than the benefit derived from more efficient domestic shipments. In testimony to this, Southern California has some 2 billion square feet of warehouse and distribution space, with much of it involved in these transloading operations. The massive transloading of 40’ marine containers into 53’ domestic containers is itself a major draw on trucking capacity and a contributor to the congestion and bottleneck issues.

With some 43% of inbound containers into the U.S. coming from China where all the 53’ containers are built and where they are legal, a new service between China and the U.S. built exclusively around the equipment size that has dominated U.S. freight movements for two decades has some compelling inherent cost advantages. In addition to obviating the costly and time consuming transloading step, the same quantity of freight can be handled in one-third less container crane moves. While it’s these economic cost reductions from fundamentally taking out steps that should drive any decision on such a new service, the emissions and congestion benefits tangential to less economic cost are considerable. The marketing advantages of launching such a bold U.S. flag initiative would be meaningful and the best candidates for that are large transportation companies with no present involvement with shipping. No traditional container shipping company will undertake an initiative exclusively built around 53’ containers owing to its installed base and this means the first company to go down this path will capture significant first mover advantages.

The overall Asia to North America container trade lane represents 25% of worldwide loaded container miles, just as the overall Asia to Europe trade lane. A meaningful subset of the former is the China to East Coast trade lane. As shown above, the all-water routing results in significant economic, carbon and congestion cost benefits.

How To Get To Ideal?

Analysis and planning are always the best path to the most efficient supply chain solutions. Malcom McLean had a wonderful ability to come up with big picture breakthroughs by looking at individual freight movements, unpacking them into granular components and building them back better. The container shipping industry would benefit itself and its customers by returning more to that granular problem-solving mode. When that is done, better long-term solutions will be developed. A key part of that approach is to have a maritime supply chain that interfaces better and more seamlessly with the domestic U.S. freight system. How operations are performed in truckload and doublestack rail terminals can be inspirational in terms of ways to improve efficiency.

The container shipping industry itself should be stronger advocates for the all-water route compared to the intermodal route for loads destined for eastern points. After all, the former results in much larger demand for container shipping services. While a weekly China to West Coast service can typically be performed with five vessels, it takes ten vessels to a perform a weekly China to East Coast service. For shippers presently preferring the intermodal routing, there reasons for making that choice should be probed. When inventory carrying costs are referenced, the math related to the value of the product being shipped and the related total inventory carrying cost should be compared to available cost savings. As the example above demonstrates, it almost all cases the additional inventory carrying cost is a fraction of the direct economic cost savings from electing the more cost, emissions and congestion efficient all-water routing.

In almost all cases, the shippers freight decision will be driven by cost economics. In general the larger the cost savings, the larger the related decreases in carbon and other emissions as well as congestion will be. Those non-economic to the shipper factors will be increasingly important. Where they will become more so is if and when they become associated with a direct economic cost that will be passed on to the shipper. Related to emissions, both the International Chamber of Shipping and Maersk, the largest container operator, have both recently come out in favor of a global carbon tax. With such broad support, it is only a matter of time before this is put in place. A carbon tax will have the affect of substantially increasing fuel costs which will widen the cost gap between all-water and intermodal routings and sway shippers who haven’t previously been swayed. Just as a carbon tax turns emissions into a tangible economic cost that gives shipper the further incentive to make the right choice, policy makers can develop a mechanism that monetizes congestion. For instance, a federal excise tax on fuel used for doublestack train service of containers originating from foreign points that go beyond a mileage threshold would purposely target cross country rail movements. This would dissuade long rail movements when a lower economic cost and lower carbon cost alternative was readily available.

The $17 billion earmarked for ports in the infrastructure bill that is expected to be passed shortly offers a unique opportunity to improve the maritime supply chain. It is unfortunate that even more funds aren’t allocated for ports given the superior return on investment that results from well thought out efforts in the port area. Policy makers would do well to study the numbers related to the recently completed container terminal in Charleston, the first new major U.S. terminal in over a decade, and the direct and indirect economic benefits that are now flowing from that investment. The economy would be much better served if the amount earmarked for ports included a large portion of the $25 billion earmarked for airports. That view is clearly influenced by the earlier perspective on moving freight by air. That being said it is obvious that the relative mismatch is driven by the fact that people vote and freight can’t.

Looking at where infrastructure investments in the port area can have the most beneficial impact, it is clear that the priority should be given to the container supply chain. Both the direct and indirect economic benefits from improvements there are well ahead of the other shipping segments. In addition, items such as dredging that benefit container shipping will also flow through to the other segments.

In terms of particular projects, the priority should be given to infrastructure investments that increase capacity both presently and allow for further expansion in the future. This principle invariably will favor new terminals and ports that will clearly be needed to accommodate expected future growth. That certainly doesn’t preclude investments to improve existing ports, but those projects should be ranked by what they do to increase capacity both now and going forward.

Consistent with the theme of this article and the significant economic, carbon and congestion benefits that come from shifting some cargo now coming in on the West Coast to the East and Gulf Coasts, public interest would be served by giving higher priority to projects in those latter port ranges. Such a priority will admittedly be controversial, but if the goal is to serve the broader interests of everyone which projects that improve emissions and congestion fit squarely with, that is a rational priority. It would seem that once the infrastructure bill becomes law, a clear statement of the key principles that will govern the allocation of those funds would be useful and constructive.

To leverage the impact of the $17 billion, the whole array of frameworks involving public private partnerships needs to be considered. In addition to that resulting in more projects to improve the maritime supply chain, the direct involvement of private sector expertise will act to diminish the likelihood of moving ahead on a project that is driven more by politics than economics. The reality is that political appointees who often have little or no actual subject matter experience will influence or make the decisions on these infrastructure projects. The involvement of private sector partners with skin in the game in a way in which they lose if the project isn’t sound is an excellent way of mitigating the risk of undue political influence. Given the well known knock off effects from large port related projects, the political jockeying for such projects will be very intense. It seems like the Maritime Administration and DOT would be well served to establish an advisory board consisting of carriers, terminal operators and other transportation experts with specific commercial expertise to advise on both the types of projects that should be given priority and to obtain feedback on specific projects.

Of all the potential port related infrastructure investments, there is one that checks many of the boxes in terms of moving towards a better maritime supply chain. Indeed, today’s Interstate Highway System equivalent of infrastructure investment in the maritime supply chain may very well be direct to rail doublestack discharge on trains that are then shuttled to new inland ports. The shuttle distances would be no more than what is needed to get to large new parking lots where the containers are then placed on chassis to achieve the ideal fully wheeled operation. The entire inefficient and bottleneck prone stacking operation is eliminated. In addition to dramatically changing the capacity of existing terminals and ports, by rethinking where the terminal should be compared to where the vessel is discharged, a whole array of new port opportunities are created. Just as oil discharged from tankers at the LOOP (Louisiana Offshore Oil Port) is stored 25 miles inland, the container ship discharging operation can actually be de-coupled from the terminal. The extraordinary benefits from such a new fully wheeled operation would represent a significant return on the investment that put such a more efficient system like that in place.

Well thought out initiatives backed up by the judicious investment of the $17 billion in the infrastructure bill can result in a material improvement in America’s maritime supply chain. It primarily requires some out of the 40’ marine box thinking with a focus on how boxes (preferably 53’ if they are coming from China) fit into our extraordinary efficient domestic transportation system.

John D. McCown has four decades of experience in the maritime sector including serving as CEO of a U.S. flag container shipping company he co-founded and leading transportation investments at a multi-billion dollar hedge fund. Mr. McCown was mentored by Malcom McLean, the inventor of containerization who he worked with for twenty years Mr. McCown is the holder of two maritime related patents as well as a MBA from Harvard Business School and is the author of the recently published book “Giants Of The Sea: Ships & Men Who Changed The World”.