Thread by @MultipieSocial

1/n
A classic economic model of the world assumes demand and supply as the two parameters that determine pricing. Well, here we talk about the third leg that is causing havoc in global trade - logistics, specifically shipping containers.

A thread 🧵explaining the crisis.

2/n
Remember that big ship ‘Ever Given’ getting stuck in the Suez Canal? If that wasn’t enough for the shipping industry, we are now seeing a major global container shortage. This has led to a massive surge in shipping rates across the world.

Let's understand in more details.

3/n
Why are containers important?

Quoting Najib Shah, ex-Chairman, CBIC, “If exports are the lifeline of an economy, shipping containers are the lifeline of exports”. There are ~1.7 cr of these 20 / 40 feet boxes circulating globally, accounting for 85% of international trade!

4/n
Where have they gone?

No, they din't disappeared in thin air. Normally, they would be in constant circulation. But a large chunk are stuck in inland depots, cargo ports or onboard vessels (transpacific lines). The largest shortage is in Asia, but Europe also faces a deficit.

5/n
Why are they stuck? You ask...

5.1
As the world locked down last year, economic activity stopped & shipping containers got stuck at ports. In order to reduce costs, carriers decided to reduce active vessels at sea, which led to the stranded containers not being retrieved.

5.2
Now China opened up first, resuming import-export. So the spare containers available in Asia were used to export to Europe & North America. But, these countries still had COVID restrictions so even these containers couldn't come back early enough.

5.3
As economies started opening up, the demand for shipping containers rapidly increased, but so did the backlog on ports. Altogether, this had a domino effect and we reached where we are today. And it's bad!

6/n
So where are we today?

The shortage is at an all time high and has led to global container prices skyrocketing. The Drewery World Container Composite Index of the 8 major shipping routes released in June shows that container prices have risen almost 300% from an year back!

7/n

As per Bloomberg, the cost to move goods in a shipping container to Europe (Rotterdam) from Asia (Shanghai) has shot above $10,000 for the first time in history. This is putting export and import supply chains under pressure.

bloomberg.com/news/articles/…

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So what is the way forward?

It's going to get worse until we peak next year, if you believe the experts.

Also, chances of situation improving is solely based on the expectation that global bottlenecks are relieved and demand patterns normalize soon.

9/n

The comment section of this tweet from @typesfast (CEO of Flexport) has interesting perspectives on the shipping industry and current situation.

Highlight - Shipping companies are expected to have a bumper profit year.

https://twitter.com/typesfast/status/1403018803156459523?s=20

10/n

How is India impacted from this?

10.1 Overview:

India has an ambitious export target of $1 trillion by 2025. To achieve this, India must aim to have 5% share in world merchandise exports and 7 % in services exports by 2025 (currently 1.7% and 3.5% respectively).

10.2
~90% of India’s trade by volume & 75% by value moves by sea, mostly containers. Freight rates have doubled and even if the exporter is willing to pay higher, containers are scarce.

This is impacting exports of basmati, hand tools, sports goods, sugar, leather & textiles.

11/n

We are interested in evaluating Indian shipping in more details, given these developments.

Top carrier owners:
1. Shipping Corp of India (second by fleet size, but first by capacity/ tonnage)
2. GE Shipping (first by fleet size)

More on this later. Have a good weekend!