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May 10, 2021

Why is the world short of containers?


Containers are large containers used to transport large quantities of goods. In international maritime trade, they are, in many ways, the best mode of transport. One of their main advantages is that they can be used to ship any type of goods, from the bulkiest to the most dangerous.

Not to mention the fact that they offer excellent cost savings, as shipping by cargo ship is significantly less expensive than shipping by air. The reasons for this are the low fuel consumption and the smaller, but still efficient, number of controls.

However, since the outbreak of the Covid-19 pandemic, everything has changed. Departures have reduced their frequency, and at the same time delays and fleet concentrations have increased. The result has been a massive drop in containers worldwide. Let's see, in more detail, what happened.

Drop in containers: The context

As mentioned above, the outbreak of the pandemic has turned the tables in many respects. The world of international shipping has therefore also suffered greatly. But how has Covid affected maritime trade?

Shipments by sea have always been very popular, precisely because they allow very large quantities of goods to be imported or exported at a relatively low cost. However, the timeframe for such shipments is rather long and the pandemic has made the situation worse.

The US and Asia are the two main pillars that support the entire global trade. Therefore, it is not hard to believe that if even one of them were to start faltering, it would have repercussions all over the world. And so it has.

Indeed, as the pandemic spread from Asia, other countries began to implement blockades and restrictions, halting economic movement and production. Many factories therefore temporarily closed and caused a large blockage of containers at ports.

So the first domino fell in North America, where the pandemic wave caused a bottleneck to form. So, to stabilise costs and the erosion of ocean tariffs, the first manoeuvre was to reduce the number of ships at sea, further curbing imports and exports.

The role of containers

So what role do containers play in this context? Blockades and restrictions have increased more and more, and with them, the number of sick people. As a result, the low level of transport movement and the limited number of staff available meant that empty containers were no longer being collected. This problem was particularly felt by Asian traders, who could no longer collect their empty containers from North America.

In addition, the scenario became even more unified as China started to recover but the rest of the world to deteriorate. Thus, it was restarting exports to Europe and North America, but its containers could not turn around fast enough, thus causing a continuous build-up.

Sea-Intelligence (a leading global supply chain consultancy with a strong focus on container shipping) investigated this issue through research. They found that while before the pandemic North America was responsible for 40-45% of the imbalance needed in Asia, after the pandemic it became 55-60%responsible.

But why is North America the culprit? Because, again according to Sea-Intelligence, it is the place with the worst port congestion problems and is only slowing down other countries' efforts to repatriate containers.

North America is now facing a 40% imbalance, which in numbers means that for every 100 containers that arrive, only 40 are exported. The remaining 60 then continue to accumulate. This explains the very low container presence in the world today.

What consequences did the drop in containers have?

It is easy to see that in such a context, there was no lack of consequences. Let's see what the main ones were.

The first sector to suffer, closely linked to shipping, was Customs. Due to understaffing, increased restrictions and tighter borders, it has become even more complicated to carry out all customs clearance processes, which has led to further container congestion.

The second direct cause of the container decline is surely a large increase in shipping rates. In the last four years, the Drewry World Container Index has reached an all-time high and rates have more than doubled.

Freight rates (tariffs for transporting containers) have skyrocketed. Before the pandemic, shipping a 40-foot container from China to Europe cost about $1500-2000. Now, however, it has gone up to around 9-10 thousand. And if the rates have increased, the departures have decreased: from one per week, today, the interval can be as long as 10/15 days.

But container costs are not the only thing that has increased. In fact, the global container shortage has also led to asurge in the cost of importing and exporting goods, which, due to the domino effect, is being passed on first to businesses and then to consumers.

Regarding the reason for the price increase, there is also another observation to be made. During the pandemic, the demand for shipments also increased dramatically. Consider, for example, the fact that many people had to buy new electronic devices or new furniture to adapt to the new smart-working style.

In addition, for obvious reasons, the demand for medical equipment and personnel protection has also risen sharply. All these factors, combined with the previous ones, resulted in the formation of the famous 'bottleneck' and a real domino effect.

Finally, one last consequence has also seen a close relationship between China and Europe, between which there has been a sharp increase in the transport of goods by rail, reaching 1,165 convoys and signifying an increase of 66% on an annual basis.