Container shortage is shipping’s Achilles’ heel

06.27.2024

An initial surge in freight prices — prompted by ships taking the much longer route around the Cape of Good Hope — petered out in March, yet prices have now surged even higher

Surging freight rates have myriad complex causes but one is shockingly simple: Ships in China are running low on empty containers to carry goods. Unfortunately, it’s impossible to immediately fill the shortfall and, once again, the container lines are cashing in.

The shortage is raising eyebrows because, until recently, ocean liners had far too many boxes compared with prevailing demand. This was after shipping companies and lessors spent heavily on new equipment during the pandemic to ease congestion. Liners are again scrambling to find containers — this time due to vessels rerouting following Houthi attacks in the Red Sea.

Geopolitics is inherently unpredictable, but an industry trusted with carrying around 90% of the world’s goods, and which earned hundreds of billions of dollars during the pandemic, still lacks sufficient resilience.

An initial surge in freight prices — prompted by ships taking the much longer route around the Cape of Good Hope — petered out in March, yet prices have now surged even higher. Amid signs of intensifying port congestion in Asia and the Middle East, AP Moller-Maersk A/S this week raised its full-year earnings forecast for the second time in a month.

Executives and industry watchers have identified a culprit: equipment availability. Right now there are signs of shortages of boxes, which, in combination with the port congestion, reminds of the Covid years.

Maintaining the flow of empty shipping containers is always a challenge because global trade is lopsided: China is a big net exporter of merchandise, whereas the US is a net importer, for example. On average, roughly one-third of containers are transported empty so they can be repositioned.

Managing this process is even more complicated now. Demand has been stronger than expected — possibly due to restocking and an earlier start to the peak season — while ships are spending longer at sea, soaking up vessel and container capacity.

Eastern Mediterranean ports are no longer easily accessible via the Suez Canal, and therefore carriers are offloading goods at western ports like Barcelona, meaning goods face additional delays before reaching their final destination.

When freight rates fell in 2022-2023, the container lines started to get rid of surplus boxes to match lower demand and to avoid the steep depot levies on unused equipment. Meanwhile, container production fell last year to the lowest since 2016, according to maritime research firm and consultancy Drewry.

Almost all the world’s shipping containers are manufactured in China, and the good news is producers there are now rapidly ramping up output again; factories churned out almost as many in the first five months of this year as they did during the same period in 2021. In the meantime, prices for 40-foot (12-meter) «high cube» cargo-worthy containers in China have in recent days surged to as much as $3,350, according to Hamburg-based Container xChange, an online logistics platform.

It is expected that freight rates and box prices will fade later this year as ocean liners take delivery of new vessels and containers are repatriated to where they are needed.

Analytics on topic
Report
09.03.2020
Report
09.03.2020
China Economic Quarterly Q1 2020

The PwC’s Quarterly Review describes the state of the Chinese economy during the most challenging phase of pandemic-related constraints. The research focuses on the state of the private sector of the economy, the country’s exports and imports, and employment.

Article
06.27.2024
China-Europe freight rail service traverses continents, history

The China-Europe freight rail service achieved a remarkable milestone on May 25 by completing its 90,000th journey