To explain the devastating impact of Covid-19 on global container availability, we invited our partners at Container xChange to speak at the 7ConNetwork Virtual Networking Conference in September 2021.
If you are working in the logistics space, you are certainly already aware of 3 dominant industry trends:
- Equipment shortage overall in Asia
- Extreme congestion in western ports
- High freight rates, with recent slight easing
Developments in ocean freight spot rates on the stretch from China to Northern Europe, as a general example of most east to west stretches, are depicted in the below graph provided by Xeneta and IHS Markit.
To see how the market situation affects the global availability of containers and vice versa, Container xChange developed the Container Availability Index (CAx). Looking at the largest Chinese port and one of North Europe's top 3 ports on the CAx, we can compare the last 3 years to read the story of the impact of the pandemic on the normal supply of containers in particular locations. Consider 2019 to be a “normal” year in terms of world economy, global trade flow and equipment availability.
What threw equipment supply off balance
At the 7CoNetwork Virtual Networking Conference, the Managing Director & CEO of Container xChange, Christian Roeloffs, broke it down into the 3 key factors that threw the global equipment supply out of whack.
Increase in demand for consumer goods
Instead of spending money on going to concerts or traveling abroad, people went to Amazon and other online shopping marketplaces. The stuff ordered online of course, had to come from somewhere and had to be shipped from somewhere. Here we have seen the imbalance of global trade exposed and an increased demand for transportation capacity.
Worldwide asynchronous lockdowns
The second key factor that we have seen is the effect that COVID had on lockdowns- or in the way of lockdowns and in that the lockdowns were not synchronous. Lockdowns rolled out one-by-one across the globe, so countries, ports, production facilities, and shipping facilities were shut down in sort of an asynchronous manner. Consequently this resulted in a situation where “containers were really always at the wrong place at the wrong time”.
Increased container turnaround times
Then the last thing that of course plays a significant role, according to Roeloffs, is the increased container turnaround times as an effect of supply chain disruptions like port congestion. Taking for example, the number of container ships anchoring outside of the ports of LA / Long Beach.
From 40 - 45 days from China to Chicago or Shanghai to Chicago, the same transit is now up to 70-75 days. So containers are just needed for a longer time. With longer turnaround times and a significant increase in demand for container capacity, we have in essence, more freight on less available containers.
What the CAx predicts for the future
China is currently producing containers at maximum capacity but containers are being absorbed immediately. Growth in the container fleet however, is consistent with long term trade growth. Looking back at the past couple years, we had actually been producing too few containers. Now, this maximum effort to supply enough containers is essentially a recouping effort to get us where we should be anyway in order to keep up with global trade.
“We are not afraid, so to speak, the current spike in container production will lead to a boom and bust cycle with container prices really crushing down next year, because the production efforts just take us back up to where we should have been in the first place- if you look at container production in the last couple of years. So it's essentially also the recouping of the lack of containers over the last couple of years. At the same time container prices have also spiked. ”
The spike in prices, Roeloffs noted, is actually quite interesting in terms of equipment availability because usually prices are a very early indicator of what availability will look like.
“So what we see on the trading platform is that there's really no relief in or new reduction in prices in sight; which makes us believe that the current situation will actually endure until Q1 or maybe even Q2 of 2022 before we see the relief in prices and capacity. ”