Thread by @jpr007

Where are all the containers? The global shortage explained

Freight shipping is in the midst of a unique and unusual predicament

An unforeseen cascade of events caused by the pandemic has us facing a worldwide container shortage crisis
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It’s a crisis because the lack of containers has a ripple effect down entire supply chains, disrupting trade on a global scale

So where have the containers gone ?

Many are in inland depots

Others are piled up in cargo ports, and the rest are on board vessels

The largest container shortage is in Asia, but Europe also faces a deficit

To grasp why the containers are where they are, it’s important to first understand the domino effect that has led to the present situation

Let’s start at the beginning

Pandemic wave creates North American bottleneck

As the pandemic spread out from its Asian epicentre, countries implemented lockdowns, halting economic movements and production

Many factories closed temporarily, causing large numbers of containers to be stopped at ports

To stabilize costs and the erosion of ocean rates, carriers reduced the number of vessels out at sea

Not only did this put the brakes on import and export, it also meant empty containers were not picked up

This was especially significant for Asian traders, who couldn't retrieve empty containers from North America

Then, a unique scenario developed

Asia, being the first hit by the pandemic, was also the first to recover

So while China resumed exports earlier than the rest of the world, other nations were and still are dealing with restrictions, a reduced workforce and minimal production

A consequence of this is that almost all of the remaining containers in Asia headed out to Europe and North America, but those containers did not come back quickly enough

Massive workforce disruptions due to coronavirus restrictions in North America affected not only ports, but cargo depots all across the country as well as inland transport lines

Without adequate staffing, containers started to pile up

As borders tightened, customs became more complicated to clear as well, worsening congestion

In addition, there were rapid shifts in tradelane demands that were challenging for carriers to adapt to

There was no time to clear the very large backlog of containers with limited workers before more started arriving

North America currently faces a 40% imbalance; which means that for every 100 containers that arrive only 40 are exported

60 out of every 100 containers continue to accumulate, which is a staggering figure considering the China to USA trade route sustains on average 900,000 TEUs per month

TEU = Twenty-foot Equivalent Unit = standard small container

The standard Forty-foot large container = 2 TEUs

That’s during a normal year; the current shipping volume is at record highs this quarter

- up +23.3% compared to last year, according to Descartes Datamyne

While the situation is continuously changing, it is evident that the transpacific volumes from Asia headed stateside aren’t slowing, offering no recovery time

Why ?

Carriers jump on lucrative transpacific profits

Container shipping rates have been surging on all East to West shipping routes since May, with the highest rate upturn hitting the transpacific

The Drewry World Container Index is currently at its highest in four years

Eastbound container freight rates have not just increased a lot since the beginning of the COVID-19 outbreak

- they have more than DOUBLED, eclipsing all historical highs

SE Asia to US rates have spiked from around $2,000 up to an eye-watering $4,500 per 40ft container

Alphaliner reports that carriers can get 66 cents per 40ft container per nautical mile on the Shanghai to LA route against less than 10 cents on the return

Even better rates are on Shanghai to Melbourne with 88 cents, or Shanghai to Santos with 75 cents

The pressure is on to get containers back to Asia so that carriers can take advantage of these margins, empty or full

The Asia to US and Asia to Oceania trade routes have become so lucrative that carriers aren’t even waiting for cargo before sending containers back to Asia, especially when the cargo isn’t available at port

The global container fleet shrinking

Compounding on the shift in trade imbalances and bottlenecks is that production of new containers is woefully low

The rate was already down in 2019 and dropped even further this year, especially when demand fell dramatically in Q1 2020

The scrapping of containers now exceeds the building of new ones, causing inventories in factories to plummet

It will take months before more vessels and containers are built, meaning capacity likely won’t normalize until Q2 2021

This limited access to available containers is also driving up the buying price of new containers, since manufacturers know demand is such that they can charge at a premium

Chinese container manufacturers dominate the new container market and they now charge around $2,500 for a new container, up from $1,600 last year

Likewise, container leasing rates have rocketed up by around +50% in the space of just six months

The race for available containers

Needless to say, the lack of containers can’t satisfy current shipping demands

- and we have a full-blown container crisis on our hands

Any available containers are booked out immediately, which is why we strongly urge our customers to book cargo as early as possible

Although there are some measures underway to help resolve the deadlock, such as carriers attempting to reduce free time and detention period as well as more efficient unloading systems . . .

. . . realistically we won’t see the global container shortage crisis returning to normal for the coming months

Unfortunately, it’s also predicted that contract freight rates will remain high throughout next year

IT'S A WONDERFUL WORLD THAT WE LIVE IN

- and you had better be on your toes

Nothing can be taken for granted any more