The ocean freight industry is currently experiencing a global shortage. This is a unique problem that has come about due to unforeseen circumstances relating to the COVID-19 pandemic. The lack of containers is not only a singular problem. It has a trickle-down effect that is transforming the logistics industry, worldwide supply chains, and global trade.
The world is currently going through a trade imbalance. While there is high demand for imports, exporters struggle to meet demand due to the lack of containers. The shortage is driving up freight rates, causing some exporters to operate at a loss. In contrast, container manufacturing demands have skyrocketed as exporters try to regain stability.
Although the container shortage stemmed from the pandemic, the problems are currently a little more complex. The knock-on effect means there are now multiple variables involved. A multi-faceted approach must be implemented to solve the issue. To fully understand the crisis, it’s essential to recognize the reasons behind it.
The Pandemic Origins of the Shortage
In early 2020, the COVID-19 virus began spreading globally, causing virtually all continents to enter lockdown. Restrictions halted many economic activities and manufacturing work.
Ports were forced to implement increased safety and sanitization protocols, slowing cargo handling and port operations. Due to the closure of factories, ports held many storage containers.
With reduced manufacturing, increased handling times, and large numbers of containers being held at ports, exporters reduced cargo.
Exporters chose to reduce the number of ships in transit to retain some level of profitability. Deploying vessels without adequate cargo would have led to significant losses, putting shipping companies at serious risk.
This slowed the flow of imports and exports and meant that only the most profitable trade routes were being used. Ignoring certain trade regions reduced the number of empty containers being collected.
Although this approach helped stabilize the ocean freight industry, it further exacerbated the problem of container shortage.
China’s COVID Rebound
China implemented fast and effective measures to combat the progression of the virus. They managed to control it much earlier than any other country, allowing them to rebound strongly. While many countries were ramping up restrictions and preventative measures, China resumed much of its production and exports.
As China is the world’s largest exporter, large quantities of goods are being shipped from Asia to Europe and North America. However, despite the re-engaged tradelines, restrictions and disruptions in these areas were still prevalent. Ports experienced slower handling and stricter customs regulations, creating a lot of congestion.
In addition to this, land freight was also disrupted, contributing to further stagnation. This caused a severe backlog of storage containers that were not being sent back into transit.
US Christmas Demand
In September 2020, the US market began to prepare for the Christmas period, creating a large demand for Chinese imports. From September to December, approximately 900,000 TEUs per month are transported along this trade route.
The increased capacity, combined with the slower processing of goods, caused a further reduction in turnaround time, continuing the container shortage cycle.
Reduced Air and Land Cargo
The container shortage was made worse due to the reduction of air and land cargo. In normal circumstances, this issue could have alleviated using air and land freight.
However, international flight volumes have plummeted throughout the pandemic leading to even more items being shipped via ocean freight. The same can be said for trucking and other forms of land freight.
North America is experiencing a shortage of truck drivers, making it increasingly difficult to transport the goods imported through the ports. Even east to west coast transport in the US has been challenging.
There are limited solutions to these containers’ build-up, particularly when there is consistently high demand for imported goods.
Slow Return of Empty Containers
The main issue is the slow return of empty containers. Although shipping lines generally run shipments at full freight capacity, the processing time is too slow, meaning there is a build-up of static containers.
During peak demand for goods toward the end of 2020, media reports claimed a significant trade imbalance between Asia and the USA. For every 100 containers that entered the US, less than half were being exported. The accumulation of containers continues to make the issue worse.
Despite the backlog, there are no signs of reduced trade between Asia and the rest of the world. This is due to the increased freight rates.
Freight Rates Spike
Due to the scarcity of shipping containers, exporters now pay excessively high rates for shipments. While there is high demand for their services, shipping companies continue to operate at full capacity.
The trade route between Asia and North America is now so valuable that shipping companies send vessels back without any cargo to facilitate further exports.
Freight Container Manufacturing Race
Naturally, there is a race for the manufacturing of freight containers. However, production is behind demand as manufacturing was halted for large parts of the pandemic. Container manufacturers need time to build supplies.
When Will it End?
While increased container manufacturing may l be the solution to reducing free time for exporters, it could be a long wait before the demand is met. There is no clear timeline or solution to the current problem, and freight rates are expected to remain high throughout 2021.
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