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Expensive Shipping Containers Mean Rough Sailing for Global Trade
The deterioration of productivity and the rising cost of shipping a container are dashed hopes that the world’s supply-chain issues will be resolved anytime soon.
Any end-of-year optimism that kinks in global supply chains would be ironed out in the first half of 2022 has faded, according to shipping experts, economists, and company executives.
Ports in the United States and Europe are congested, and the cost of transporting goods around the world is rising. Congestion in Asia worsened in the run-up to the Lunar New Year as businesses scrambled for capacity to ship goods before factories closed for the holiday early this month.
“We’ve had clients request that we delay shipping out items again this month,” said Jian Liu, an international sales representative at a company that manufactures refrigeration equipment in the eastern Chinese coastal city of Taizhou.
Clients typically request that sellers delay shipping items when they are unable to obtain containers, book slots on vessels, or secure dock space at their final destination at a reasonable price. Mr. Liu stated that the company has reduced its planned production since April 2021 in order to avoid producing more products than it can easily ship.
Because of the strain on global supply chains, Western consumers can expect little respite from rising prices, putting further pressure on central banks to tighten policy in order to keep inflation under control.
The Federal Reserve has indicated that it expects to begin raising short-term interest rates in the United States in March. The Bank of England has raised interest rates twice since December, and the European Central Bank has indicated that it may raise borrowing costs before the end of the year, reversing earlier guidance that it would wait until 2023.
The plight of the average container reveals the clogged-up state of global supply chains. On a variety of measures, 20- and 40-foot steel containers—the workhorses of global commerce—aren’t moving as frequently as they were prior to the pandemic.
According to data from Flexport Inc., a freight-forwarding technology company, a container on the trans-Pacific route from Asia to the United States took an average of 45 days to leave the exporter’s gate, cross the ocean, and be ready for collection by the importing company in 2019. It took 112 days as of Feb. 6, up 2% from the previous week and 8% longer than the average time taken at the end of November.
Another metric for container productivity is the number of times it is handled in port each year. According to data from Drewry Shipping Consultants Ltd., a maritime research firm, the average container was moved 20.1 times in 2018. Last year, that figure had dropped to 17.8 times, and it is not expected to change in 2022.
“The boxes are much less productive than they used to be,” said John Fossey, Drewry’s director of container equipment leasing and research.
The container crunch started in 2020, when Covid-19 forced shipping companies to cancel sailings. “That resulted in millions of containers being placed in the wrong places,” said Lars Jensen, CEO of Vespucci Maritime, a shipping-industry consulting firm.
He estimates that approximately 11% of the global container fleet is currently stranded somewhere in the world, either idling on a vessel waiting to be unloaded or lingering in port awaiting pickup or a slot on an outgoing vessel.
According to a Cosco Shipping Lines Co. regional sales representative in China’s Guangdong province, congestion at the southern ports remains a concern, and the company plans to allocate more of its ships to overseas use from domestic use in the first half of the year, as it is having trouble getting ships back from abroad.
Policymakers and business leaders had hoped that 2022 would bring relief. In the second half of 2021, there were tentative signs of improvement. “Orders for Christmas items were jammed in September and all shipped out by October last year, and after that the costs cooled off a little,” said Bryan Zheng, founder and CEO of Livall Tech Co., a Shenzhen-based tech startup that manufactures cycling helmets.
However, shipping industry experts say that costs are rising again as a lull in activity after Christmas in the West and Lunar New Year in Asia passes. Mr. Jensen estimates that shipping a 40-foot container from Asia to Europe now costs between $15,000 and $20,000, up from $2,000 in 2019.
Even as container manufacturers, the majority of which are based in China, ramp up production, prices have risen. According to Drewry data, capacity increased in 2021 by the equivalent of more than 7 million new 20-foot containers, bringing the total available to nearly 53 million.
According to a person in the company’s overseas sales department, a manufacturer in Zhejiang province that makes catalytic converters for motorcycles and cars is facing further increases in shipping costs. After the Lunar New Year, prices have risen slightly. “We were told that the shipping companies will begin raising their prices in March,” the source said.
Covid-19 is once again obscuring the picture. China’s zero-tolerance virus strategy, which resulted in the closure of the Ningbo-Zhoushan port in August, has resulted in lockdowns in cities such as Shenzhen and Tianjin this year. Analysts say this has hampered traffic into and out of nearby ports by keeping truckers and dockers off the job, even though the ports have remained open so far.
“Covid is again clogging the works,” said Craig Botham, chief China economist at Pantheon Macroeconomics in London.
According to analysts, there are encouraging signs that bottlenecks in some parts of global trade may be easing. According to HSBC economists, manufacturers’ order books and other data indicate that demand for electronics is beginning to cool. In a recent note to clients, UBS economists stated that factory production has increased in parts of Asia as governments in countries other than China ease Covid restrictions.
However, experts in the shipping industry and economists agree that the main issue is still insatiable Western demand for consumer goods. According to Drewry, annual port throughput in 2021 was the equivalent of an estimated 849 million 20-foot containers, up 5% from 2019. It is expected to rise again this year, to 888 million 20-foot equivalent units.
“If global trade is a pipeline, we’re trying to jam a lot more through a pipeline that can’t really get any bigger,” Chris Rogers, principal supply-chain economist at Flexport in London, said. “It won’t get any better until demand starts to fall.”