When will the Container crisis in Global Trade end?
Although this question is quite far for the people on the street, there is a very strange situation for those who deal with global trade. This is also the case for those who use inputs from abroad in production. Naturally for the exporters and importers too.
Many enterprises experienced anomalies in many markets after Covid 19. They all have different reasons.
Let`s go a little deep and see what happened in 2020 and how it will continue in 2021.
The reason for the problems in foreign trade and supply chains is the container shortage.
Deliveries are delayed because there are no containers to transport the goods. Some goods remain at customs or ports. On the one hand, costs are flying.
There are actually two reasons why freight costs are flying.
· The problem with the ships that will carry one.
· The other is the cargo problem of the ships to be transported.
When this is the case, highway and airline options have already been used, but of course, these are not serious options such as sea transport.
Look, how many times the costs have increased from China to the Netherlands (pink line) and again from China to the USA (black line) during the pandemic. In the last quarter of 2020, the unit cost was $ 2,000, while the prices in the first months of 2021 reached $ 9,000!
For many reasons. Compared to other countries, China has completed its disease cycle first and is almost committed to exports.
On the other hand,
This one-way trade means difficult routes to plan for ships that do not want to make free trade returns.
The cost of floating an empty ship is quite high. For this reason, many routes could not be drawn.
Delivery rates have skyrocketed to 50 percent ahead of time. In other words, the frequency of the expected ships arriving on time has halved. There is no such rate until 2011, when the data can go back. For example, the rate of timely deliveries in the previous year was 80 percent.
Another problem is aging in the container fleet. For this reason, the structure to load the goods cannot be found. Containers first carry other goods and come back. Then they take your goods. In order...
The recovery in trade due to front-loaded commodity purchases in China and high commodity prices has also damaged the usual trade cycle.
Logistic professionals specializing in the container fleet do not foresee renewal in the short term.
Companies that write tariffs and offer prices for ships are also in contact with politicians, but no one mentions a price reduction in a short time. Besides, it is not easy and logical to build a ship and drive it to work.
The only hope was the Chinese New Year. As many businesses was closed, a short-term decline in both prices and demand was supposed to be expected. But it was difficult to see any meaningful change until the summer.
Unfortunately, the expected has not come.
1) China started to collect containers!
Empty containers, which caused a great crisis in world trade and became increasingly difficult to supply, began to be used as strategic power among countries.
China has started collecting empty containers, and the United States imposed a requirement to buy goods from their country.
The empty container crisis, which upset all balances in the global supply chain, has fueled trade wars between countries.
It was noted that empty containers are beginning to be used as strategic power.
Representatives of the Turkish logistics sector emphasize that
China is collecting empty containers and the USA is obliged to buy goods from its country, and that it is getting harder to export.
Authorities expect the problem, which is expected to extend until June, to be resolved urgently with incentives to be given to alternative solutions.
2) The pressure on ship-owners
I can easily say that the empty container supply problem, which almost doubled not only the freight rates but also the equipment production prices, caused the logistics processes in many countries to be disrupted.
On the other hand, despite this situation, China started production quickly by taking the pandemic under control in a short time.
The persistent demand for empty containers is making this process even more negative.
China needs empty containers to maintain its exports. For this reason, it puts pressure on shipowners.
As the shipowners are more profitable, they are positioning the empty container in China by thinking profitably as if there is no other country than China.
3) Political tensions spilled other regions.
Israel and Saudi Arabia have also started imposing restrictions on empty container exit.
These countries do not allow the exit of more than 50 empty containers. For now, we can only buy empty containers from Greece and Egypt. If they also start to imposing restrictions, the situation will be more critical than I think. While Ro-Ro transportation is shown as an alternative for the short-term solution to the crisis that brought production to a halt in some companies, it is stated that an incentive mechanism should be activated for the production of a strong fleet and container in the long term.
4) Global war under the container shortages
There are global trade wars under the container mask and the fact that those with containers can export has created a deep black market on this issue.
With the 2008 financial crisis that erupted in the USA, the maritime industry entered into serious wars, and in order to survive this war,
It had merged with its biggest rivals and established common trade routes.
For the last 12 years, shipowners have been marketing, competing for freight, extending the demurrage 'free time' periods and keeping track of BCOs and freighters in order to fill their ships.
With the pandemic, the domino effect started in China.
While factories were shutting down one by one all over the world, China started full gas production within two months and worked day and night.
It became a candidate to export to the whole world alone. The situation has come to such a point that even if we send all of the empty containers in the world to China, it was not possible to meet this demand. And the war started like that.
The US, the largest container importer, slowed down the ports and did not allow the containers to be loaded empty. No shipowner wanted to load the container empty before the pandemic. Shipowners would like to enter a worthless goods and get rid of the empty container port costs. When the freight rate between China and USA became 10 thousand, war started.
No shipowner could see the 50-100 dollar empty container price it would pay to the port. And suddenly the instruction came: Send all empty containers to China!
CONTAINER CRISIS MAY EXTENT UNTIL 2022
The container crisis, which started with the pandemic and grew with not enough containers at the right spot, may extend to 2022 - despite the record new production to be seen this year - according to the predictions of two important leasing companies in the industry.
Container leasing companies Triton International and CAI International announced their first quarter results in April and shared their expectation that “as long as container capacity continues to be insufficient, it will be a profitable year for container renters” .
According to the Freight Waves report, both companies drew attention to the increase in prices due to insufficient supply and pointed out that this situation will likely affect leasing performance by 2022.
CEO of CAI International, “Shipping companies have no expectations of relief from the container shortage they are currently struggling with. So for us, the outlook looks pretty good, at least until the end of the year and possibly to 2022, ” he says.
TOTAL CAPACITY MAY INCREASE
About 80 percent of the total container production in the world comes from only three Chinese companies: CIMC, DIC and CXIC. There is a record growth in production and according to Drewry data, which closely monitors the container industry,
It is estimated that the industry's total new container production will increase by 52 percent this year compared to last year.
Estimates suggest that
This record increase will increase the total container capacity by 6 to 8 percent.
However, the container is not a product that can be produced very quickly, and the time-consuming production investments makes it difficult to overcome the capacity constraint quickly enough.
Will new container production solve the problem?
According to Drewry Shipping Consultant estimates, the global container volume increased by 5.8 percent to 45.7 million TEU in 2020.
Production in the first quarter corresponds to an increase of more than 10 percent compared to the last quarter of 2020 and an increase of 21 percent compared to the same period last year.
After record first quarter production, Drewry is of the opinion that the year will be closed with 4.7 million TEU production.
John Fossey, senior container equipment analyst at Drewry, said:
“Based on current manufacturing activity, we anticipate that total 2021 production could exceed 4.7 million TEU. This means that it will surpass the record of 4.42 million TEU seen in 2018, an increase of 52 percent compared to the production of 3.1 million TEU last year, ” he explained.
Drewry stated that production capacities of all manufacturers were full until the end of the year, and 90 percent of the first quarter production was 40ft high cubic containers.
New container production is required not only to meet the increasing demand, but also to replace containers that have reached their 15-year lifespan.
In The Load Star analysis, it is stated that a life of 15 years for containers in the sector is generally created, and it is stated that most of the containers produced between 2005 and 2009 will end soon. Stating that 45 percent of the orders, which brought record production this year, went to renewal needs, Fossey said that a lot of production took place at the end of the 2000s and the share of new production to go to renewal will exceed 60 percent next year and by 2025 .
CONGESTION IN PORTS CANNOT BE SOLVED IMMEDIATELY WITH NEW CAPACITY
Container analyst Fossey from Drewry, a consultant to the shipping industry, says that
“This record production will probably not ease the acute container constraints that many shipping companies and brokers are currently struggling with. I'm afraid the supply constraint will continue until the end of the year. "