Containers Strong demand, lack of containers, high freight rate and congestion delay become "new normal”

2021 is a record year for container shipping and an expensive year for shippers.

Since the second half of 2020, the soaring demand and shortage of containers in the container market have greatly pushed up freight rates and caused widespread congestion in major ports around the world. The container transport market is moving towards a "new normal", and the cyclical recovery of freight and market may last for several years. Shippers and logistics companies may face difficult times.

The problem of container shortage has gradually stepped out of the narrow industry vision and started to attract the attention of the mass media《The New York Times 》reported on this problem which is not new in the industry for a long time, and commented that the shortage of containers leads to inflation, and consumers will become the final payer - "demand... Has exceeded the supply of containers". The epidemic situation in the United States has eased, and retailers can pass on higher transportation costs to consumers, Instead of being accused of price fraud - "the cost of almost everything is rising."

Many months after the first container shortage, the problem is still serious？

Equipment leasing companies have the most say in answering this question. They order containers from a very small number of Chinese manufacturers and then lease them to shipping companies, which will also order directly from factories.

Two listed leasing companies, Triton International (NYSE: trtn) and Cai International (NYSE: CAI), commented on container availability in their first quarter 2021 results last week.

Container leaseholder: only 2-3 weeks supply.According to industry media reports in the United States, CIMC, DFIC and CXIC produce about 80% of the world's containers. Recently, the output has increased, and it is estimated that the container capacity will increase by 6% - 8% this year. But even so, the speed of container construction is still not enough to ease the market tension.

O'callaghan, head of global marketing and operations at Triton, a listed leasing company, said in a conference call that although the factory strengthened container production at the end of last year and the beginning of this year, the inventory of new containers is still very low. "The supply of people (containers) sitting on the ground waiting to be moved is only about two to three weeks.".

The price of containers is a manifestation of continued scarcity. At present, the price of new containers is $3500 / cost equivalent unit (TEU), which measures the value of containers as a multiple of 20 foot dry cargo unit, compared with $1800 / TEU at the beginning of 2020 and $2500 / TEU at the end of 2020. In the past three months, the cost has been basically stable at $3500 per TEU.

The recent price increase is more extreme in the used container market. Container xchange reported that the price of second-hand containers in China almost doubled, from $1299 / TEU in November to $2521 in March.

As the inventory has been exhausted, the shortage of available sales containers has led to a weekly rise in prices. 

Why is the new Containers still insufficient?

This year's increase in production came after a period when orders were below market substitution requirements. According to Brian sondee,Triton's chief executive,a lot of container production this year is, to some extent, to make up for the low production in 2019 and the first half of 2020.

Another reason why containers are not more abundant is that Chinese factories have no way to expand their production capacity because of China's environmental constraints, the supply of raw materials, domestic demand and other factors. As manufacturers, there is no sign that they will increase their container production. "China's container factories are controlling global demand.

When can the shortage of containers be alleviated?

Alleviating the scarcity of containers is not just a production problem. Many containers are seriously delayed due to port congestion and Suez Canal ever given accident, resulting in turnover failure. Only when these jams are cleared one by one will more containers be available.

The slowing down of "container speed" caused by interference started with the epidemic situation in early 2020, and then from late 2020, "the flood of containers inundated the port's ability to transport in and out containers", followed by "icing on the cake" - the blockage of Suez Canal ".

Now there is an unusual situation in the port of destination of Chinese goods. The ships were so eager to turn around that they were "forced to leave empty containers when they returned to China.".

"Several of our major customers report that almost every ship leaving China and other export regions is fully loaded, but due to tight shipping schedules and the need to make a quick U-turn, they can't wait for all the empty containers. When they leave, the containers in the (return) section are 5% - 8% less than those in the (previous) section."

So we're all trying to figure out what this transition will look like. I haven't seen any of our customers express confidence that they can lift their business bottlenecks in this strong period. Our general view is that it is likely to continue until trade slows down. Who knows when that is. But I think the bet may be at the end of this year or at the beginning of next year, maybe the trading world will start to return to normal.

Containers Strong demand, lack of containers, high freight rate and congestion delay become "new normal".

Lars Jensen, an analyst at Vespucci maritime, a maritime analyst, said shippers and logistics companies will face a series of difficult years, and the cyclical recovery before 2024 will be conducive to the stability of high freight rates and benefit container shipping companies.

At present, it will take us 4-6 months to really have a chance to get the back to normal. But it requires the world to be normal to some extent, which is not the case. When the demand is extremely strong, container liner is in the process of digesting excess capacity. For a long time, excess capacity has been a feature of the container market to cope with congestion.

This also means that the container industry will face a cyclical recovery, which will benefit container liner companies and make the cost of customers higher.

And the disruption of the Suez Canal at the end of March exacerbated the misfortune.