Global Trade Nightmare – Container Shortage

Global shipping companies are facing very unique challenge – Finding containers to ship goods. China is paying premium to get the containers back to fill them for exports. This is making more profitable to return empty containers then filling them for some importers. This is creating another problem as Global shipping lines are refusing outbound cargo in order to ensure then empty containers are returned to China and other destination for refilling purpose.

Early last year, when the Covid-19 Pandemic began to spread, many countries began implementing national lockdowns and ceasing the production of goods, which ultimately pulled the plug on economic growth. 

Global Shipping Companies started withdrawing capacities from the market and led to grounding of the container ships. This resulted in not only halting of EXIM Trade but also empty containers being left where they were.

USA has been a classical example where containers originating from Asia could not be delivered back due to COVID lockdown.

However, as the Countries started to recover from pandemic and economic activities started finding feet, the demand for goods improved suddenly. However, the recovery process has been uneven and erratic. This means as country like China was able to kick start manufacturing operations, other Countries and their logistics infrastructure were not ready for the resumption of activities.

So here were these containers lying? A significant number of containers have found themselves in inland depots while others have been stacking up at cargo ports. 

As Asia slowly began to recover, other countries were still had partial or full lockdown restrictions meaning containers could not be sent back to Asia (where they were really needed) to continue the trade. The unfortunate deadly combination of factors like pairing of lockdown regulations, staff shortage, meant a backlog of containers began to develop. 

Uneven and patchy recovery of Freight Transport and sudden spurt in demand for goods resulted in tremendous mismatch in demand and supply situation in Global Shipping market. There are not enough ships and containers to meet the demand of global EXIM trade.

According to the Financial Times, the price of a 40-foot container routed from Asia to Northern Europe has risen from $2,000 to $9,000, while CNBC has reported that the cost of goods transported from Asia to the West Coast of America has increased by 145 percent.

Since July last year, demand for commodities such as medical equipment, home office supplies and computer equipment has forced supply chains to import many products and materials from China to fulfill consumer needs. With the country rebounding from months of suspended trade, this has created an imbalance – exporting approximately three containers for every one imported.

It’s estimated that there are more than 170 million shipping containers across the globe, used to transport around 90% of the world's goods. This is good enough capacity to meet global trade requirement. According to one estimate, Global Trade volume has risen by only 5% however the Freight rates have gone up by 7-8 times. However, the devastating effect of Pandemic have left global shipping lines with backlogs and delays due to labor shortages, reduced capacity in logistics systems, congestion at ports as well as quarantined cargo. This means manufacturing
locations like China, Taiwan, Vietnam, Thailand China doesn’t have enough available containers to meet demand. With products piling up in Chinese factories and traders bidding high prices for containers, Reuters claims that "average container turnaround times have ballooned to 100 days from 60 days previously."

In our view, this will continue till the end of 2021 calendar year by which time most of the shipping capacities will be back in market along with containers imbalances sorted out. Till that happens we will continue to experience bottlenecks in global supply chains and abnormal high shipping rates.