PORTS, terminals, and shipping lines appear to be aligned in their message that Australia needs to invest in infrastructure to accommodate larger vessels. The Port of Melbourne, limited by the geography of Swanson Dock, has been warned by shipping lines that inaction could result in its demotion as the largest container port by volume in Australia. The stakes couldn't be higher.

But before we run off and invest billions, it's not unreasonable to ask a basic question of all parties involved: who will bear the costs and who will enjoy the productivity benefits?

There is no doubt that larger ships will deliver increased economies of scale for shipping lines, where the fixed capacity costs of a ship exceed the unit variable costs associated with transporting the ship between two ports. However, experts have also identified a "diseconomy of scale" to consider when ships are in port.

This is because the time spent in the port and the cost associated with handling containers increase with the larger size of the ship. A presentation by maritime intelligence agency Drewry, Megaships – the need for greater dialogue, highlighted several cost burdens on port and transport infrastructure associated with larger vessels, including ports requiring longer and deeper quays, terminals needing larger yards to handle peak loads, higher staffing to deal with peaks and larger cranes to unload cargos.

In Melbourne the issues are even more pronounced with bridge height restrictions, depth in the Bay and the multi-billion-dollar question of if, where and when, we will need to build a second international container port to accommodate these vessels.

Undoubtedly, the bill for all of this will be footed by the usual suspects: the tax payer and the shipper. While the shipping lines will achieve significant cost savings through new economies of scale, will any of these cost savings be passed onto the shipper? Will the supply chain enjoy any benefits aside from the profitability of the carrier?

While larger vessels may assist in keeping freight rates low, that hasn't necessarily been the global experience. Moreover, there's more to total supply chain costs than freight rates. The Global Shippers Forum notes in its report The Implications of Mega-Ships and Alliances for Competition and Total Supply Chain Efficiency: An Economic Perspective that while "increased ship size has been associated with reduced costs for carriers.

This does not, however, automatically mean that shippers' costs have declined to the same extent or as rapidly, or that total supply chain costs have fallen." They also identify several supply chain risks associated with the up-sizing of vessels, and quote the example of Tesco's in the UK, who note that the "spike in volumes" created by larger vessels has created significant disturbances in their supply chain, including ports not being able to deal with the spikes and dumping cargo at the quay, and issues relating to stock holding and inventory management.

Another much-discussed threat for Australia is that larger vessels could translate to a reduction in the frequency of services. For JIT supply chains that would be bad. For our export competitiveness that would be disastrous. Shipping lines will reject this possibility outright but it is not beyond the realm of possibility for a small market like Australia.

The other question that needs to be asked is do we have the sufficient outbound volumes to justify larger ships? The largest ships currently in the Australian trade are the three 7847 TEU vessels MSC has on its Australia Express Service (to Europe) and if it wasn't for the recent record grain season, would they have filled their outbound capacity from Australia?

Australia will not be visited by "mega-ships" (the 22,000 TEU titans that we see in Europe) any time soon. The larger vessels we will be accommodating will likely be 8,000 TEU+. Nevertheless, any up-sizing of vessels has real economic costs and associated supply chain risks that must be acknowledged, particularly given the degree to which this has started to influence our national infrastructure planning.

Larger ships visiting our country is an inevitability. Australia is a small market in global shipping terms and we are subject to global trends. In truth, Australian shippers have already started to pay for larger ships via the Infrastructure Levy, which, according to the stevedores, is being used to upgrade their crane fleet. And, with the second container port in Melbourne and other major investments being discussed, we can assume that we will be paying a lot more through our tax payer dollars in the future.

'Productivity benefits' will accrue, but almost exclusively to the carriers.

* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association