Shipping container imbalance drives costs higher

Shipping container imbalance drives costs higher

There are plenty of shipping containers in the world and plenty more being manufactured daily.

But the problem is they are not in the right places.

It is due to a domino effect that goes right back to the start of the COVID pandemic in late 2019.

Back then, as China went into lockdown, fully laden ships that had left Chinese ports continued on their journeys to destinations across the globe.

But when they arrived, with the world just coming to terms with the growing seriousness of the pandemic, they were instructed to unload their cargoes and depart without reloading.

That meant a lot of containers were left on the wharves where they were unloaded and ultimately found their way to the growing stockpiles of empty containers in storage yards.

Ultimately though, global trade rebounded and consumer demand quickly returned for manufactured goods. That led to more ships departing China bound for those same ports full of empty containers.

This time, they were met with delays in unloading and reloading. Typically, ships will take cargo to where the demand is, then if there is no corresponding supply to take elsewhere, reload with empty containers and set sail at high speed There is nothing more financially depressing for a shipping company than a ship laid up waiting so as soon as they were able to offload, they let go the mooring lines and bolted for home to reload and embark on another ship.

And the result? More containers being left in destination ports rather than finding their way back to the supply source.

Just to add salt to the wounds, when the Ever Given cargo ship wedged itself in the Suez Canal in March this year, it meant the 20,000 containers onboard and many thousands more on vessels caught behind the blockage were taken out of circulation for a few weeks – an eternity when it comes to the time-is-money world of international shipping.

Ultimately, that means backlogs and delays with suppliers in key manufacturing hubs such as China and India crying out for empty containers to get their goods to customers. And it means the few containers that are available in the right locations are in very high demand.

The basic tenet of the supply and demand equation is that when supply is limited and demand is high, prices increase. And that is exactly what has happened.

In fact, over the past 12 months, according to the World Container Index compiled by UK-based maritime research and consulting firm Drewry, the cost of a 40-foot container has increased 368 per cent.

Ultimately, the time delays and cost increases work their way down the supply chain to wholesalers, retailers and consumers.

Other than toilet paper and pasta during temporary lockdowns, few products on Australian shelves have seen equivalent 368 per cent price increases. But there have certainly been delays and until the container imbalance is corrected, those delays will continue.

Just when the balance will return is unclear, although according to global freight provider Maersk, with more containers entering the market and an increase in shipping traffic, relief is in sight.

Container leasing giant Titan predicts we’ll be back to a sense of normality come April 2022, although Harvard Business School suggests if we have learnt anything throughout the pandemic, it is to expect the unexpected.

Nevertheless, pending no further unexpected canal blockages, improvements in supply chain efficiency, better global vaccine rollouts and perhaps a decent dose of optimism, we can rest assured it is temporary.