3)Explain how the concept of economies of scale has influenced the growth of

containerization. How is supply chain management related to growth of

containerization?
Definition
Containerization
Containerization is a method of distributing merchandise in a unitized form thereby permitting
an intermodal transport system to be developed providing a possible combination of rail, road,
canal and maritime transport. It is a technique of stowing freight in reusable containers during
the transportation process. The system is long established and was in being at turn of the
century in a somewhat less sophisticated form.
The Container is a large standard size metal box into which cargo is packed for shipment aboard
specially configured transport modes. It is designed to be moved with common handling
equipment enabling high-speed intermodal transfers in economically large units between ships,
railcars and truck, using a minimum of labor. Also, the containers can be reusable during the
transportation process.
Economies of Scale
It is the relationship between a firms long-run average cost and its level of output. The
advantages of large scale production that result in lower unit average cost per unit. The costs of
operations such as manpower and equipment do not increase proportionately with size. Hence,
per unit cost of transportation is reduced. The greater the quantity of a good produced, the
lower per unit fixed cost as the costs are shared over a larger amount of goods.
Economies of scale can be divided into 2 types, internal and external of economies of scale.
These two types of scale will affect the growth of containerization in different aspect.

Internal of economics of scale: Increase in container size and containership size

Increase in container size
Economies of scale are obviously pushing towards the largest container possible as it implies for
inland carriers little additional costs. The larger the number of containers being carried the
lower the costs per TEU. For instance, carrying 40 footer or a 53 footer container on rail mostly
involves the same transshipment and capacity usage and thus the same rate. As a result, in
many gateways along the North American West Coast, an active trans loading function is taking
place where the contents of three maritime containers of 40 foot are transshipped into two
domestic containers of 53 foot. Also, the same ship capacity would take, in theory, twice as
much time to load or unload if 20 footers where used instead of 40 footers. Therefore, larger
sizes container confer economies of scale in loading, handling and unloading, which are
preferred for long distance shipping as well as by customers shipping large batches of
consumption goods.

Increase in containership size

Like many forms of transportation, container shipping benefits from economies of scale in
maritime shipping, transshipment and inland transportation. The reason of maritime container
shipping companies to have larger ships is for lower costs per TEU, increase with the capacity of
ships for storing more containers. By increasing the size of the ship the building, operating and
capital costs do not increase proportional to the size of the ship. Also there is thus a powerful
trend to increase the size of ships. The process became a virtuous circle compounding larger
volumes and lower costs. By reducing unit costs per TEU carried; economies of scale in ship size
provide a short-term competitive advantage.
So it is a fact that costs at sea per ton or per TEU will decrease as ship size increases. Potentially,
therefore, there are significant economies of scale to be earned from operating larger ships than
smaller ship. Therefore the size of containership will increase, for example, Maersk Line, the
world's largest container shipping line is ordering a series of ten 18,000 TEU vessels from
Daewoo Shipbuilding in February 2011. The ships will be delivered between 2013 and 2014.

External of economics of scale

Horizontal integration
Horizontal mergers are those mergers where the companys manufacturing similar kinds of
commodities or running similar type of businesses merge with each other, such as ship
companies. The aim is to achieve economies of scale in the production procedure through
carrying off duplication of installations, services and functions, decrease in working capital and
fixed assets investment, getting rid of competition, enhancing the market capability and to get
more dominance on the market, such as Merger, Acquisitions & Strategic alliances
The rules of international container shipping have been changing. The formation of carrier
alliances and the growth of mergers and acquisitions have accelerated over the past several
years and affect the growth of containerization. Companies such as HapagLloyd, Nedlloyd,
CGM and MOCL have, in the past, benefitted from and expanded through merger. More
recently, large scale mergers (such as those between P&O and Nedlloyd and between NOL and
APL).
Since there are economies of scale in shipping, we would expect large firms to grow even larger
from one period to the next and smaller firms to either grow in size or disappear.
It is good for the growth of containerization, because the large shipping company can utilize the
containerization more efficiently than small shipping company with reducing empty containers.

The relationship between supply chain management and the growth of containerization
By lowering the cost of shipping, containerization enabled global trade and permitted a higher
level of reliability of global freight distribution systems. It permitted completely new practices,
namely global supply chain management. A variety of goods, from toys to apparels, could be
easily traded, which enabled many supply chains to be securely expanded to low labor and
material cost locations with their integrity and reliability readily maintained.
Supply chain management spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point of origin to point of consumption. In supply chain
management, it always uses containers to transport great deal of materials or products in
different types to the same location. Therefore it can reduce the transportation cost per unit,
but it needs a good management system to record all information of product for providing
sufficient to manager, such as, location, type and the due date. Take china as an example,
commercial trade between China and the United States is almost completely containerized.
Future containerization growth is thus more likely to be linked with business cycles than with
market diffusion.
Moreover, there are many types of commodities where a substantial containerized niche
market is being established. Grains, wood products, scrap materials, produces and processed
food products are particularly suitable for this transition, but require the setting of specialized
supply chains. From a mode that virtually did not exist in the 1950s, global transport systems
have adapted to containerization to substantially transform international trade.