Container shortages led to freight price increases and shipment delays

It has been an uneven development for international shipping and disruptive for global supply chains: some countries have experienced acute shortage of shipping containers while other countries have too many of them idling away unused, creating huge bottlenecks worldwide.

Container shortages caused freight rates to rise sharply, surging by two to four times and, in some cases, by as much as eight to 10 times.  Delays in shipment deliveries were common at the height of the pandemic.

But how did the container shortage come about? “We know that it was caused by the Covid-19 pandemic. It led to a sharp rise in shipping and container prices while causing delays in delivery times for both the receivers and shippers of containers,” a Hamburg-based shipping broker told Asia Cargo News on condition of anonymity.

It began in early 2020, when the pandemic started to spread, forcing many countries to impose national lockdowns and reducing or even completely stopping production of goods, thus slowing down the economic growth trajectory.

Shipping companies, keen to contain their losses, resorted to reducing the number of cargo ships. This not only stopped the usual import-export traffic but also resulted in empty containers not being collected.

A glaring example of this development was visible at American ports, where containers from Asia languished in inland depots or at cargo ports, and could not be returned to shippers, mainly in Asia, because of the Covid-19 lockdown restrictions and shortages of workers.

While much of the world struggled to recover from the Covid-19, China, which was the first country affected by the pandemic, staged a remarkable recovery. This also enabled China to resume its import-export trade while other countries struggled to do so.

Amid the Covid-19 pandemic, customers were spending less on services and more on goods due to the nationwide lockdown restrictions, creating bottlenecks and increased demand for containers needed to ship goods. A factor adding to the bottlenecks was the Chinese New Year celebrations during the third week of February when the industry, usually, experiences an increase in container traffic and a decline in Chinese production because of the holiday season.

Shipping lines such as Maersk and Hapag-Lloyd were also affected by the global container shortage that also had an impact on their shipping. According to Hamburg-based maritime sources, Hapag-Lloyd increased the pace of container refilling and emptying by about 25% over the usual time taken for the purpose. Besides resorting to maximizing the use of containers in shipping, Hapag-Lloyd has, for instance, started using older containers and asking customers to return empty containers earlier. The company has also been re-examining old containers that were sent for repairs or those that were to be sold after several years’ use.

Adding to the shortage bottlenecks was the loss of containers at sea; the World Shipping Council’s 2020 report estimates that an average of 1,382 containers are lost at sea each year.

The impact of the container shortage was felt by shipping lines, which adopted new and creative booking procedures. Indeed, to reduce the container shortage, Alibaba associate company Calniao came up with its own container booking system, used for both air and sea cargo traffic, servicing 200 ports worldwide.

Container shortage was also attributed, partly, to the surge in demand as shoppers spent an increasing part of their earnings and savings on home improvements, generating huge demand for furniture and other requisites needed to work from home. The pandemic, which led many office and other workers to work remotely, has become, at least for now, the “new normal.” The massive demand for personal protective equipment (PPE) products and medical requirements created added congestion at ports and container shortage.

As a result of the container shortage, importers also faced a sharp jump in shipping prices which had risen to record level by end of 2020. The price hikes were passed on to retailers who noticed that the cost of shipments on the popular trade route from China to Northern Europe, for instance, had jumped four-fold compared to early 2020.

Some see the acute container shortage that hit the shipping sector in 2020 as easing, also, thanks to precautions and other measures taken by those involved in the shipping business. European experts predict that as container availability continues to increase, there would be a further decline in congestion and easing of the situation.

But there are shipping insiders who maintain that it will take a while before there is any significant easing of the situation. The shortage could possibly continue, at least for some time, in 2022. They argue that a realistic assessment of the situation showed that there were not enough returning containers at the shipment ports to keep with the overwhelming demand for cargo and, in effect, for containers.

An answer to the duration of the container shortage could be found with those in the leasing of heavy materials, particularly equipment. The container shortage has also revealed the heavy dependency on China which, besides exporting the goods, is also the main manufacturing source of containers. The business is concentrated among a few Chinese box manufacturers, who lease their containers to shipping lines. Three Chinese companies – CIMC, DFIC and CXIC – account for more than three-quarters of the global container production. There is another element of uncertainty: containers are not being produced quickly enough to meet the heavy demand. The result is that the price of a new container has also risen sharply.

Hapag-Lloyd placed an order worth some US$550 million for 150,000 TEU of containers as a way to alleviate the shortage by having the boxes returned in time. Hamburg-based sources told Asia Cargo News that this was one of the largest container orders by the German shipping line.

North America currently faces a 40% imbalance; which means that for every 100 containers that arrive only 40 are exported. Sixty of every 100 containers continue to accumulate, a colossally high figure, considering the China to United States trade route sustains on average 900,000 TEUs per month. This figure is typical of a normal year; since this year’s current shipping volume is at a record high, the figure of idle containers is likely much higher.

Many would like to see government support in streamlining the flow of information. Gene Seroka, the head of the Port of Los Angeles, at a recent press briefing, said he will urge the Biden administration to fund a nationwide information sharing system to align port, truck and rail services with shipping line schedules to overcome bottlenecks.

Container shortages have also hit the agriculture sector, with farmers and companies dealing in agriculture and export soybean products bearing the brunt of the problem.

Darwin Rader, international sales manager of Michigan-based soybean processor Zeeland Farm Services, and also a board member at Specialty Soya and Grains Alliance, a national association of soy special food grade businesses, has been telling the media that it took longer to have a “ripple effect inland, but now we have a mess.”

The alliance, along with other groups, has been urging various U.S. government agencies to help ease the shortage, but Rader fears the inability to export soy products and a variety of other goods will persist in 2021.

He fears that companies in Asia that depend on American food-grade soy products were looking for other supply sources. Once overseas customers are lost, he notes, it is very hard to get them back.

Manik Mehta