This article was originally published by Conexboxes.com.
If you’ve ever driven by a shipping port or train depot, it might be tough to believe that there is a shipping container shortage in the world right now. There seem to be so many of them that it’s almost unthinkable that there somehow might not be enough.
However, that’s precisely what’s occurring. Since the beginning of the Coronavirus pandemic, there has been a massive shortage, which has had a significant impact on global trade, slowing economic activity worldwide.
Curious how this happened and what we need to do moving forward? Read on to learn all about the current shipping container crisis and how we can fix it.
Modern Shipping Containers
The shipping containers you see stacked on ships and carried on trucks have been in use since the 1950s. For most of human history, people moved goods around the world in boxes and crates, all of different sizes. This made it hard to predict shipping costs and reduced the amount of cargo you could move at once.
All of this changed with the invention of the modern shipping container and the ships that carry them. Made from high-grade, durable steel and uniform in size, today’s shipping containers help drive our global economy.
To give you an idea of how much of a big deal these boxes are, consider these stats:
· There are currently 25 million shipping containers spread out around the globe
· Each year, more than 11 billion tons of goods are shipped around the world, which equals about 1.5 tons per person
· Around 90 percent of the world’s goods are moved using shipping containers
· The global shipping industry is worth about $8.7 billion
As you can see, the world relies pretty heavily on shipping containers, but this just makes the current shortage all that much more dramatic. There is so much at stake when goods can’t easily be moved around the world.
Let’s dig a bit deeper into this situation.
What Happened to all the Containers?
When we say there’s a container shortage, the first thing you are probably thinking is that there aren’t enough containers in the world to go around. This isn’t really the case. In fact, the world typically has more containers than it needs.
However, what’s happening during this current crisis is that the boxes aren’t where they’re supposed to be. Instead of moving freely from port to port and getting loaded and reloaded, they’re getting stuck.
Currently, Asia is experiencing the biggest shortage of containers, though Europe also doesn’t have what it needs. This means that the vast majority of the world’s containers are bogged down in North and South American ports, though more so in the former than the latter.
Let’s take a look at how this happened.
Why Have Containers Become Scarce?
The primary reason why there is a container shortage is the pandemic. As lockdowns went into place worldwide at the beginning of 2020, global economic activity came screeching to a halt. This messed up many things, as we know, but it also left us with a container shortage.
Here are some more details about how this happened.
Global Shipping Explained
To fully understand how we got to this point, it’s essential to know how global shipping works.
In short, the vast majority of the goods we ship around the world move on ships. Hence the word “shipping.” Containers arrive at ports where they are emptied. From there, new goods are put into the container and sent to somewhere else in the world. In this way, there is a constant flow of containers that helps keep the global shipping industry working.
However, one crucial detail to remember is that few places have balanced trade, meaning they either export more than they import or vice versa. For example, Asia, particularly China, almost always operates on a trade surplus, meaning they export more than is imported. Europe and the United States, on the other hand, import more than they export.
The economic ramifications of this are varied, but it means that some places are always going to have more than others when it comes to containers. To be more specific, not all of the containers that leave Asian ports go back there. There simply isn’t enough volume for this to happen. When this is the case, producing countries, such as China, must make more containers to compensate for the deficit.
It’s much cheaper to do this than sending for an empty container from a port located somewhere else in the world. Most shipping companies won’t ship empty containers since it’s not profitable for them to do so.
In other areas, containers tend to pile up in ports and depots since there aren’t enough goods to fill them and send them back somewhere else. This is why it’s so easy and cheap to get a shipping container to turn into a house, business, farm, etc. In many places in the world, they’re just sitting around rusting away.
All of this means that the global shipping situation is almost always operating on a thin margin. Any disruption, major or minor, is bound to cause problems. Most recently, a ship got turned sideways in the Suez Canal, delaying deliveries and impacting economies around the world.
The Coronavirus Pandemic Disrupts Trade
Although most of us would rather not, if we think back to the beginning of 2020, we can remember that the first countries to encounter COVID-19 were in Asia, specifically China.
Once it became clear that this was more than just the ordinary flu, many of these countries imposed very strict lockdowns, meaning people weren’t even allowed to leave their houses. This brought an immediate stop to almost all shipping activity in Asia, which we just mentioned is primarily exportation.
By the summer of 2020, once the world had “figured” out the virus and started resuming activity, Asian countries, which were hit first, were the first to reopen. When economic activity restarted, it meant that containers began flowing out of the region.
However, things were still shut down in the rest of the world. Although Asia always has a deficit, things got much worse since they sent out their usual quantity of goods and boxes but received even less in return than usual.
When something like this happens, a shortage is bound to happen. However, the uniqueness of the Coronavirus pandemic has made things worse for several reasons, such as:
As you might expect, this situation has produced a lot of abandoned containers. These boxes arrived in ports from Asia, but then they got stuck. Part of this has to do with the imbalance we just mentioned. Yet, another key factor was the lack of labor.
Lockdowns meant that people lost their jobs. While economic activity is beginning to improve, many of these jobs haven’t been reinstated, and they might not be for some time. Therefore, part of the problem is that there simply aren’t enough people working at the ports to load and unload goods to make sure that the containers make it back out to somewhere else in the world.
All this means is that until countries around the world can resume economic activity at full throttle, it’s unlikely this container shortage will be resolved.
No New Boxes
Another problem is that manufacturers stopped making new containers. Around 90 percent of the world’s shipping containers are made in China, and when the country went into strict lockdown at the beginning of 2020, this completely froze all industrial activity.
We already mentioned that China relies on making new boxes to compensate for the shortage that results from their trade surplus. When they stopped making new boxes, this only made things worse, creating the conditions for today’s shortage.
Of course, Chinese manufacturers were able to resume production in the summer of 2020, but the damage had already been done by then. In many ways, the world is still trying to catch up.
Shrinking Container Fleet
Although we can all agree this pandemic has been a nightmare, many people have taken this time as an opportunity to do things they had been planning to do for some time. For example, a lot of homeowners seized this opportunity to remodel, move home or tackle big projects.
Well, many shipping companies had a similar idea. Because the industry runs on such tight margins, taking ships out of service to be upgraded or repaired is expensive, so it’s only done when it’s absolutely necessary. When the pandemic brought global trade to a stop, many saw this as an opportunity to upgrade their fleets.
This made the container shortage worse because fewer ships moving around the world slows the flow of containers. Many of these ships are likely back online, but again, the damage had already been done.
Altered Buying Habits
As people in Europe and the US have been forced to work and study from home, there was a significant uptick in electronics sales, mainly because people wanted to upgrade their equipment to do their jobs or go to school.
Sales of home decorations and furnishings also skyrocketed during this time, as a result of what we just described above. Many homeowners saw this time as a chance to tackle those projects they had been putting off for years.
Of course, the vast majority of these products are made in Asia, and all this did was expand the region’s trade surplus, which sent more containers than usual to other parts of the world. As we’ve mentioned, these containers didn’t make their way back to Asia, creating the shortage we are currently experiencing.
Lastly, the shortage has occurred in part because there are no alternatives. We ship goods by sea because we can move lots of stuff at once much more efficiently than we could through any other mode of transportation.
For land routes, it is possible to put boxes on trains and trucks, but the capacity is not nearly the same. One cannot simply pop a shipping container onto a plane. As a result, containers keep piling up in ports around the world, leaving Asia in desperate need of boxes so that it can send products to markets located around the world.
The Impacts of the Container Shortage
In addition to frustrating economists and industrialists around the world, there are several impacts the container shortage is having, such as:
High Freight Costs
As is typically the case when demand exceeds supply, this container shortage is driving shipping costs sky-high. Some of this is normal. Without containers at the ready, ports need to order new ones, and these naturally cost more. However, shipping companies are also jumping on this situation and using it as an opportunity to make a little extra cash.
Without enough containers to go around, not everyone gets to ship their goods when they want. So, shipping companies have responded by raising prices and prioritizing those who want to pay a little extra.
Who can blame them, really? The problem with this is that these extra costs inevitably get passed onto the consumers, which means the prices we pay are going up. In a time where so many people are living on the edge and not sure how to make ends meet, any price increase in the goods they need is hard.
In addition to higher costs, it’s also taking longer to move things around. Although there was always an imbalance, before 2020, the world was pretty good at making sure there were always boxes available to fill and ship.
However, with the shortage, this is no longer true. So many shipments are left in ports to wait until there’s a box available. Depending on where the goods are located, this could mean a massive delay of weeks or months.
As we discussed, the shipping industry runs on tight margins and schedules. This means that any delay, no matter how small, has a ripple effect around the world. A delay in one port can affect another on the other side of the world. Therefore, this crisis has made it so that shipping times are more unpredictable than ever, and this cuts into profits and makes life more difficult for many people.
Slower Economic Growth
While higher freight costs and delayed deliveries are problematic, their impact is much more significant than just plain old inconvenience; they slow economic growth.
Trade is such a vital component of our modern, global economy. Everything is interconnected, and countless businesses worldwide depend on being able to move their goods from one country to another as quickly as possible.
The container shortage has made this more difficult than ever, and it’s combining with already sluggish economic conditions to make things more challenging than ever.
This is troubling because the world is in massive need of some economic stimulation. After a year or more of just keeping our heads above water, the world needs some action. However, this action will be delayed simply because there aren’t enough boxes to move things around the world. This also impacts job creation, which is one of the biggest concerns moving forward, given how many people fell out of work as a result of the pandemic.
What Happens Next?
As you can see, this shortage is almost a crisis. Yes, it pales in comparison to the ongoing health crisis, but it’s still a big deal. So, what happens next? No one can predict the future, but here are some things that are already happening or that will occur soon:
Reduced Free Time and Smaller Detention Periods
When a container arrives in port, it’s allowed a certain amount of “free time.” This refers to how long the container can stay at the port before being shipped off elsewhere. In most cases, if the container is not removed during the time, the person or entity who paid for it must incur an additional cost. These periods are also called detention periods.
In response to the crisis, many shipping authorities are reducing the amount of allowable free time, a move designed to encourage merchants to get their goods unloaded and out of the port more quickly.
In theory, this is a good idea, but it doesn’t completely solve the problem because there are so many other factors at play. However, one could argue that doing this during a container shortage, even for the right reasons, is an unfair and exploitative business practice being used to make a little extra money.
Again, who could blame them? Yet, there is a question of whether this is a fair practice during these challenging times.
Higher and Higher Rates
Currently, shipping prices are at an all-time high, and this is not expected to change anytime soon. As long as the container shortage continues, it’s more than likely that prices will continue to rise.
Again, this is simple supply and demand. Still, since these prices are ultimately passed on to the end consumer, it will be interesting to see what impact these higher prices have on the economic recovery currently underway around the world.
One thing this shortage is forcing people to do is to plan better. Shipping companies are taking orders weeks, if not more, in advance, which was not the norm before the pandemic began. For those who can predict their needs well in advance, this is excellent news, as it provides an alternative. However, not every business operates this way, so it’s quite likely that things will worsen before they improve for many companies.
Eventually, Things Will Improve
In the end, the only thing that we can really do to solve this problem is to wait. China has resumed business as usual, and this includes making new containers. Soon production will catch up, and they will have enough containers to meet their needs.
As the vaccine rollout continues, economic activity begins to resume and resemble what it looked like before the pandemic. This should help unclog the flow of containers and start to make things better.
However, it’s unlikely things will change dramatically anytime soon. Things are improving, but they’re doing so slowly. We will likely have to continue to endure this situation until the economy picks back up and goods can move more freely from one country to another as they did so easily in the not-so-distant past.
Visit the Conexboxes blog for news and updates on shipping and supply chain.
You liked this post ? Leave a comment.