Right now the biggest crisis facing the supply chain industry is the problem of dealing with the tremendous container shortage. Not just the logistics industry but also the manufacturers, trading companies and retail businesses are reeling under the impact of a massive container shortage in the last quarter of 2020. Keep reading today’s post to learn about the problem of container shortage and its impact on our sector.
Container shortage- A black swan event
Termed by Hapag Lloyd as the ‘Black Swan’ event, the shortage of empty 40 foot containers has disrupted the normal business patterns and led to tremendous delays and a super high freight rate from Asia. The intra-Asia trade route comprising of 100 port pairs and carrying an average of 30M TEU of cargo is presently witnessing a massive increase in freight rate and carrier surcharges. This is largely because of the shortage of equipment and space because of numerous blank sailings in the last couple of months.
For instance, in the first quarter of 2020, the intra-Asia carriers were providing 20 ft containers from Shanghai to Ho Chi Minh for just $1 plus local surcharges. This was due to the US-China trade war and a rise in demand for products from Vietnam. At the moment, the rates for the same port pair have risen to a whopping $970- $1300 and the rates are not likely to drop until the space and equipment crisis ends.
In the words of Nico Hecker from Container Steering, “We are currently seeing a ‘black swan’ and are experiencing the strongest increase in 40’ demand following one of the strongest decreases in demand ever. Both happening within just 6 months. Almost 3 out of 4 containers in our 40-foot fleet are currently deployed in Customer Shipments and is therefore not available for the time being. The containers must be returned to China as quickly as possible to be equipped for an expected strong fourth quarter”.
The cause of container shortages:
Pandemic and blank sailings
The first and foremost factor behind the lack in the supply of containers is the pandemic. The Covid-19 and the resulting lockdown in so many countries around the globe since March 2020 arrested the economic activities in all sectors while the ports were operating with a reduced workforce. This in turn also slowed down the speed of cargo handling. Moreover, the temporary closure of several factories also caused a large number of containers to be stopped at the ports. With a cap on the movement of cargo, the shipping lines lowered the number of vessels for stabilizing the cost. The reduction in the number of ships and the decrease in economic activities in the months from April to June also contributed to the blank sailings.
The China Factor
Although China was the first country to be affected by the pandemic, the Chinese factories started recovering their productions when most manufacturers around the world had to shut down productions because of the lockdown. Soon afterward China resumed its export activities which in turn encouraged the manufacturers to try and produce in China. Usually from the month of September China exports a large volume of shipments to North America for the Christmas season. This huge volume of cargo is generally sent by the month of October before the start of the holiday season in China.
This explains why many shippers are complaining about sailing light because of the unavailability of containers at the Chinese depots. Carriers have reported a severe shortage of 40ft HCs and at times even the 20 ft containers are not available. To quote from Container xChange, “Due to the fast increase in demand after months of blank sailings, container availability for 40ft HCs across China is currently at just 0.05 CAx points, compared with 0.63 at the same time last year.”
Decreasing manpower and lack of chassis
Moreover, as the shipping lines were lowering the number of ships the empty containers were not being collected. It is very likely that the shipping lines were restraining the number of containers exported to China. To deal with this issue, they started lowering the free time as well as the detention period. The pandemic has resulted in decreasing manpower as well as a lack of chassis. In North America, the containers are collected from the port and taken inland. However, it takes a long time for the containers to return primarily due to workforce issues at the consignee. The shortage of drivers has also added to the problem. Due to the decrease in manpower coupled with the lack of chassis, a large number of containers are not being moved from the ports. The empty containers and chassis are taking as many as one week to be returned instead of just one or two days.
Dealing with this crisis
The ongoing crisis makes it abundantly clear that the lack of supply of containers is affecting shippers from all around the globe. To deal with this situation the empty containers need to be refilled real fast. A reduction of idle time for containers is the only way forward and this will only be possible when the current pandemic gets over.