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Shipping Container Shortage Shifts into a Surplus
Initially triggered by the global outbreak of the Covid-19 pandemic in 2019, the shipping container situation changed, and we saw an ongoing container shortage worldwide. The global lockdown brought significant restrictions on movement: factories were shut down and a higher consumer demand for goods evolved. A severe lack of seaport staff due to lockdowns and isolation resulted in delays in loading and offloading of vessels. This left many vessels sitting in ports for prolonged amounts of time, stagnating the flow and supply of readily available shipping containers.
Today, however, a surplus of empty containers crowd seaports across the globe. According to CNBC, a downturn in the demand for goods and a significant economic slowdown have turned the shortage into a surplus; “It’s an unusual situation, especially this close to a usually frantic period for the industry; the holiday shopping season is just a couple of weeks away, and in past years, this is around the time shipments would ramp up as stores replenish their shelves and inventories… There’s just nothing to unload lately, nor anything to load them up with as buyers shy away from stores…” The container surplus has also led to a significant drop in shipping costs, as the average cost of a container has dropped to roughly $2,773 per 40FT container - down 73% from this time last year… “Last year, forwarders were standing in a queue for the whole night to fight for an empty container, and joking that containers were probably worth more than their weight in gold.”
However, its not completely due to a lower consumer demand. Bloomberg reports it’s a consistent mix of soaring interest rates, the war in Ukraine, a slowdown in the US Economy, and the ongoing strict enforcement of Chinas zero-Covid measures. They are anticipating that last year’s pandemic-induced demand for goods has ‘evaporated’; “consumers have switched from buying computers and televisions to spending whatever money they have left on experiences.”
What does this mean for the near future of global trade?
In any market, supply and demand will continuously fluctuate. What was once a shortage has fallen into a surplus. Despite inflation and rising interest rates, this factor has led a steady decline in ocean freight rates. Christian Roeloffs, co-founder and CEO of Container xChange, an online platform for container logistics, says the decrease in demand will have a further impact on freight prices. “In 2023, there is a high possibility of an all-out price war,” Roeloffs said. “It doesn’t seem that the capacity restrictions that we have seen in the past two years are due to return, so we’ll just have ample capacity both on the vessel as well as on the container side. With the competitive dynamics in the container shipping and liner industry, I don’t expect especially the big players to hold back, and we do expect prices to come down to almost variable costs.” (CNBC.com) The change from a supply chain that struggled in trying to keep up with unprecedented pandemic demand, to a weak demand environment and freight market now oversupplied with both ships and containers, highlights the risk of a prolonged downturn in the global economy. Central banks across the world continue to raise interest rates to fight inflation. Additionally, CNBC data reports indicate that 85% of customers plan to decrease ocean freight spending in 2023, which suggests a further decline in ocean cargo volumes.
Contributor: Lindsay Swanson
About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com.