What should shippers know about

Ocean Container Shortage

Since the Covid-19 epidemic began in early 2020, lockdowns and restrictions on cross-border trade have plagued the logistics industry. This left the world at a stand-still, shrinking the global economy by 4.4% in 2020.

The dearth of container capacity is a direct result of surging consumer demand, followed by unceasing congestion across the entire length of the supply chain. This shortage is concerning as it leads to a ripple-down effect that eventually disrupts supply chain equilibrium. 

The US currently witnesses a high trade imbalance, with only 40 containers being exported for every 100 containers being brought onto American soil. The majority of containers getting accumulated in the US results in a massive disparity of available containers across the rest of the world.

Container Shortage – Where did the containers go?

How does this impact trade?

With global transport capacity strained, the majority of containers are in seaports, land depots, and onboard various vessels stuck at sea. For the right equilibrium, a balanced number of vessels should operate to deliver loaded containers and pick-up empty ones. However, various reasons have brought imbalance in this utopian environment. 

Countries started forcing lockdowns that halted transportation and production. There was a reduction in workforce and manufacturing slow-downs that made containers pile-up. As borders closed, customs became more cumbersome to clear, aggravating the congestion. 

To cut costs and manage the minimal needs, the number of vessels plying were reduced. The lack of space in ships meant that rollovers happened, and empty containers were not ferried back.

US import influences container shortage

Container shortage is also highly influenced by the high quantity of imports that US (and Europe) gets from China. However, the Chinese imports from the West are not even marginally substantial. Getting the containers back to China is a major reason for high rates and shortage. 

The catastrophic condition does not stop here. Each country is in a different stage of a trade lockdown. Consumers have changed the way they shop. The common man prefers products to services. Online shopping with last-mile delivery has boomed in the last few quarters. The consumption trends are also hard to predict, and manufacturers are struggling to identify how to supply to these changing demands. One-off incidents like the recent Suez Canal blockage did not help the situation either. 

The combined influence of these risk factors has impacted the availability of containers. And the vicious cycle continues : with a scarcity of containers, roll-overs are more common and the cost of ocean shipping has increased.

Rise in carrier revenue and dependency on other modes

Shipping timelines have doubled. A usual 33-day benchmark for transit from Beijing to Chicago has doubled to 65 days. Every country is now looking for pioneering ideas to unclog the global trade arteries.

Container shortage, lack of depot space, and schedule reliability has blown the shipping rates out of proportion. Carriers thus might enjoy a profit bonanza for at least two years. Compared to March 2020, freight rates from China to the US have surged three-fold over this year. Major container lines like Hapag-Lloyd believe its trans-Pacific freight rates will further rise by $1,200 per 40ft.

There are various agreements with rail-based carriers that are currently offering discounts to move empty containers. Containers are very versatile and can easily be fit onto flatbed trucks and rail-wagons. 

Due to the high costs of air-freight and the large blockages with sea-based freight, traders and carriers are opting for rail-based and road-based movements. However, there are restrictions within these modes in the form of infrastructure and shortage of broad-gauge wagons. As a result, the crunch affects the rates of alternative shipping modes as well.

Healthy demand pushed global air cargo volumes back to pre-COVID levels. Depending on the kind of product being shipped and the time driven requirement, carriers are choosing the appropriate modes for shipping. 

Coping with the current container shortage

The current shortage might extend for another year or two, until all countries have managed to vaccinate themselves. 

Of course, carriers can look to purchase more containers. However, the cost of these ribbed steel boxes are higher than before and the lease rates are up by 50%. Order books for manufacturing containers in China are overbooked for the next twelve months. Chinese container manufacturers now charge around $2,500 for a new container, up from $1,600 in the last year.

Traditionally, traders can cope by shipping goods closer to the ready date to avoid rate changes. Also, staffing appropriately at ports can turn around containers faster. Ideally, identifying warehouses abroad to store goods can help in case of shutdowns. 3PLs to ease the tension and help streamline dispatches. 

However, it is more beneficial to learn to predict shipping costs and quantity in advance and take benefit through data-modeling and technology. Planning for the future, anticipating changes with appropriate buffers and having contingency plans that stem out of AI-based technology are essential. Most importantly, traders should use supply chain visibility platforms (including scenario planning) to get an end-to-end view across all transportation modes. Visibility helps pick the right route, maximize the capacity, make smarter decisions and negotiate better rates.