Freight shipping is currently experiencing an unusual and unique predicament. The Coronavirus pandemic has resulted in an unpredicted cascade of events that have brought about a global shipping container shortage. The effect of this limited supply of containers ripples down through entire supply chains and continues to disrupt trade on a worldwide scale.
The post-pandemic period has also seen an uneven economic recovery across the globe, which has worsened the container shortage in southeast Asia. Desperate exporters now have to wait for weeks and pay premium rates for containers, and this skyrockets shipping costs.
The cost problem affects anyone who needs goods from the region. However, e-commerce corporations and consumers bear the pain of higher costs.
So, where are containers? Most are kept in inland depots, while others are piled up in ports, and the remaining ones are onboard vessels, particularly on transpacific lines. Asia faces the most considerable container shortage, but the deficit is also felt in Europe and North America.
To understand why global trade is in its current situation, it’s essential first to grasp the domino effect that has resulted in the shipping container shortage.
The massive exports from countries in Southeast Asia are arguably the principal cause of the current shortage. Shipping containers filled with export cargo move to different corners of the globe and into vast inland points. But it becomes harder to re-load them with import products back to the region.
Other primary causes of shipping container shortage include:
The second coronavirus wave is wreaking havoc in India, and the new wave has proved to be deadlier and more infectious in most states. The country’s healthcare system continues to crumble amid the surging cases, and experts acknowledge that it’s hard to see the light of the tunnel.
The World Health Organisation recently stated that the country accounts for a third of new COVID-19 cases globally.
As a key exporter, the impact of the situation on trade is felt across southeast Asia, affecting the supply of shipping containers. The second wave has attracted travel bans to and from parts of the region, limiting trade and the movement of commodities. This situation has made the shipping container shortage even worse.
Trade surplus is another vital development. Most global export destinations don’t have many products to export back to Southeast Asia, leading to an imbalance. This massive trade surplus means that Asian exporters have to be aggressive about recovering empty containers since most are trapped in the west when Asian exporters need them the most. What was already considered a trade surplus here has turned dramatically serious, and more containers are going out than those coming in.
Even worse, most orders and purchases for new containers were cancelled during the early months of the pandemic when most countries went into lockdown.
The shipping container shortage is further worsened by restrained air freight capacity. New Coronavirus waves and the associated travel restrictions have dramatically plunged international flight volumes. As a result, high-value goods that used to be delivered by air are now moved via sea using containers.
The limited options and crazy demand for products further exacerbate the shortage. This crisis affects every company that does regular shipping, but e-commerce retailers offering consumer goods are the most affected since most rely on products from the southeast Asian region.
In Southeast Asia, companies have suffered massive impacts in the shipment of their products thanks to the global shortage of shipping containers.
Here are the main impacts:
The limited supply of shipping containers has brought about continuous delays at ports, including some of the biggest ones in the world. This has created a massive backlog of products waiting to be shipped from Asian companies to different destinations. As a result, containers will take even longer to travel from one location to the next, further contributing to the shortage.
Another significant impact of the historical shipping container shortage is the sudden spike in shipping costs, and this can be mainly attributed to port delays. In December 2020, the Asia – Northern Europe route saw an increase of 264% in spot freight rates than the previous year. The Asia – U.S. West Coast route rose by 145%.
Congestion at different destination ports means that companies will have to part with higher costs due to the increased congestion charges offered by shipping lines.
Concerns over tight capacity have prompted several companies to extend contracts at higher rates to avoid the spot market’s exorbitant rates. Spot rates and container contract rates are at a historic high yet don’t guarantee space. For instance, January saw a record high SCFI rate from China to South America’s east coast of more than $8,000 per TEU.
The coronavirus pandemic has demonstrated the actual value of container shipping and port personnel. When the epidemic first hit, several key ports closed down, leading to a substantial shipping backlog. Since then, there has been more to do at the docks to address the high demand for products and trade surplus.
Higher work volumes, congestion in destination ports and the need for COVID-19 precautions have slowed the unloading and re-loading of cargo. The industry is also facing a massive staff shortage. All these translate to a worsening shipping container shortage.
There’s no crystal ball prediction for the future of the shipping container shortage in the current uncertain times. However, stakeholders have established different approaches to address the global problem, like deploying an advanced booking system.
Cainiao, a branch of the Alibaba Group, responded to the global container shortage by launching its container booking solution for sea and air freight. The service is designed to cover over 200 ports in 50 nations and is mainly focused on addressing the currently experienced backlog of empty containers.
The world’s largest vessel operator and container shipping line, Maersk, has suffered the most significant impact from the container shortage. However, the company is looking forward to an improved situation. According to the company’s head of network and market, Lars Mikael, Maersk greatly anticipates relieving bottlenecks and an overall improvement. The corporation is also predicting normalised buying patterns and additional containers and vessels to enter the market. For them, the current shortage is a temporary hurdle.
Generally, the impacts of the pandemic situation alongside the global shortage have left industries in uncertain waters. However, container availability is increasing by the day, and most bottlenecks are easing congestion. As the coronavirus’ new normal progresses, there’s hope for drastic improvements.
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