Global Container Shortage
Freight shipping is in the midst of a unique and unusual predicament. An unforeseen cascade of events caused by the pandemic has us facing a worldwide container shortage crisis. It’s a crisis because the lack of containers has a ripple effect down entire supply chains, disrupting trade on a global scale.
Where are all the containers?
Many are in inland depots. Others are piled up in cargo ports, and the rest are onboard vessels, especially on transpacific lines. The largest container shortage is in Asia, but Europe also faces a deficit.
To grasp why the containers are where they are, it’s important to first understand the domino effect that has led to the present situation. In this article it is discuss some the effects that caused this shortage and what is its effect on World and on India and how big companies are tackling this situation. Major exporters of containerized cargo are listed in the figure below. (2014)
What is the crisis about?
The crisis is all about due to onset of pandemic situations, the freight cost is sky high for a 40-foot container and this is now the problem. Freight carriers are confronting a shortage of transportation containers in the midst of high demand for delivery by sea and increasing supply chain costs for certain organizations across Asia. Even many big container carriers are not even providing guarantee to the customers for its service at this much high costs. In December being the peak holiday season in markets such as USA, Europe and Australia, however the demand arising from these markets is not being met due to shortage of containers across the globe.
As China is one the biggest manufacturing hub so it imports and exports many good from containers but it never felt any shortage as the countries were going on lock-down China opened its wide gates and containers end up in China, hence it never felt any shortage and after lock-down opened it never felt that it economy mostly its Sea based containerized goods were facing any issue since they have plenty of containers. And the containers which were lying empty are like liability to the shipping company as they were paid less for the same container.
From the image below we can see that both Shanghai and Ningbo which are busiest freight ports their index was rising when all the big countries freight indices were falling.
Factors leading to the crisis?
The real reason behind this fiasco is “container imbalance”. Due to the structural imbalance between China and Europe trade and the impact of the COVID-19, the outgoing containers are way more than the incoming containers. Container leasing firms that ship a consignment hope that the container can also be used to ship another consignment back home. Problem arises when shipping firms have to ship the container back home empty. It’s an added cost as empty container doesn’t make any money and becomes liability to be shipped back.
The problem is even bigger that according to Descartes Datamyne reports, North America faces a 40% imbalance, which means only 40 containers of the 100 containers are exported back. 60 of every 100 are lying empty and no one is willing to take it and travel back to its original destination.
What is the global impact?
As a result in December, spot freight rates were 264% higher for the Asia to North Europe route, compared with a year ago. For the route from Asia to the West Coast of the U.S., rates are up 145% year over year.
Compared with last March’s low prices, freight rates from China to the U.S. and Europe have surged 300% and spot rates are up to about $6,000 per container compared with the usual price of $1,200. And the growth rate which was expected to be above 6–7% it was actually 5.1% and it will take too much long to get stable.
Major effects:-
- That shortage is causing a practice of deadheading shipping containers in favor of getting them back to Asia where the demand is high and carriers command a premium for shipments.
- Impact on global commerce was enormous, leading to a boom in international trade due to lower transportation and handling costs.
What is the impact to India?
Ocean freights has doubled and delayed started affecting the exports of major India’s strength ie. Rice Wheat to Middle-Eastern countries fell during this fiscal. According to the reports of All India Rice Exporters Association (AIREA) the freight for Europe has increased by 50% to 200% to various European ports. The increase in freight to the Americas ranges from 40% to 786% with the average increase of 299%. Freight to African ports that unloads the largest share of India’s rice export have gone up by 38% to 475%. The average freight increase for ships bound for West Asia is 243%, while the freight in Oceania has increased by 270% on an average.
There is huge accumulation of basmati and non-basmati rice that it is estimated that around 90,000 more containers are required to export that particular stock and to get farmers the right pay of what they had produced during this year. And export of grapes for manufacture of wine in Europe faced a lot of problem since due to sky high rates wine makers have decided to go for domestic market rather than importing from other countries.
When is the crisis likely to settle?
According to BOC international “It’s not going to slow down. We typically get a March/April slack, but that is definitely not happening this year and soon we’ll be back to peak season in June and July and then it starts all over again.” This surge in demand of containers will start to settle-up in February during Chinese New year holidays, due to paucity of options available to the supply chain stakeholders.
What actions being taken by companies to overcome the same?
- Companies are buying initial raw material in their domestic market.
- Companies finding other cheaper modes of transportation of goods where the demand is more.
- Some companies are spending more from their profit to make their supply chain running.
Source:-
CNBC, CNBCTV18, Hillebrand, Hellenicshippingnews
