Due to the Coronavirus pandemic, the price of shipping containers has continued to increase because of consumer demand and supply chain congestion
2020 Q3 and 2021 Q1 saw the fastest increases in shipping container prices on record, with many inside the industry being caught out by the speed and severity of shipping container price increases.
Put simply, shipping container prices have risen due to a classic ‘supply and demand’ squeeze from all directions which could easily be called a ‘perfect storm’ of issues. There is supply restriction in China, there is difficulty moving containers into Europe and the UK, used container supplies are also restricted due to current owners wanting to keep their old containers and continue to use them, rather than sell them off. At the same time as all of the above, we are seeing a very strong retail demand for shipping containers. In essence, there are ‘supply, supply, supply and demand issues’.
Over the past 15 or so years, the majority of container production has been consolidated in China where well over 90% of all new shipping containers are built. After the last recession, circa 2008 demand for shipping (and subsequently shipping containers) was very low which eventually lead to rock bottom shipping container prices. This was unsustainable for producers as they experienced a number of years of losing money on every shipping container produced in their factories.
To help relieve the low-pricing issue and reduce costs, the factories began working reduced shifts. Many dropped their 24-hour production lines down to 10 hours of production per day. This led to a restricted supply of containers, but it has taken a few years for demand to catch up and exceed supply. The current demand for shipping has risen to record levels. Shipping lines and leasing companies are ordering more containers than ever before, causing shipping container prices to rise to a profitable point.
Wary of their previous losses, the factories are increasing production, but only slightly. They are adding just 1 – 2 hours extra hours of production to their current daily shifts. This helps them increase volumes slightly, but this also means that the supply remains restricted. This is likely to keep prices high for longer.
Factory prices in China have risen from approx. US$2000 per 20ft container in January 2020 to $3800 per 20ft container in March 2021, and with no sign of demand easing any time soon.
This spike in demand is the major driver for current increases in shipping container prices.
Once the containers leave the factories in China, they need to be moved to the UK to be sold. To explain simply – when there are 100 containers ordered and built, they can be ‘given’ to a shipping line and then moved into the UK with freight inside the containers. When the freight is delivered to customers, they drop the empty containers back to the depot.
Usually, this is a nice and simple ‘win-win’ situation. The container is moved into the depot for free (or nearly free) and every container the shipping line moves out of China into the UK, means one less empty container for them to ship back again. This system works well because as a country we import more goods to the UK from China and Asia than we export.
However, the Coronavirus outbreak meant that the shipping lines were left with all of their own containers in the wrong locations all across the world. This created a bigger priority for them to deal with. Therefore, over the past year, we have seen a ‘feast or famine’ situation with shipping deliveries from Asia. While the shipping lines have their own containers to move, they aren’t interested in moving new containers instead. This may last a few months until the lines realise they are short of containers in China and want these one-way, new-build shipping containers to fill their boats. In the space of a week, there are many hundreds of containers getting gobbled up by the shipping lines and loaded for shipment to Europe.
Supply of used shipping containers
Used shipping container supply versus new container production is very simple to explain. All of the used shipping containers come from shipping lines and leasing companies. these leasing companies specialise in buying large fleets of shipping containers, which they lease back to a shipping line. These companies all work to a huge scale, which means they can offer the shipping lines a level of service that the lines want to see, to the point that the majority of shipping containers globally are now owned by leasing companies rather than shipping lines direct.
However, the supply is pretty straightforward. Once containers are too old or not deemed viable to keep running for use as a cargo-carrying unit, they are sold off to traders. They buy a large batch of these and split them up into single sales for our customers.
However, when demand for shipping is high, the owners of container fleets have demand from their main customers to keep shipping containers on hire. Because of this recent massive spike in demand for shipping goods around the world, we are seeing a huge drop off in our supply levels because the regular drip-feed of supplier containers has all but stopped. This also makes buying in for some traders a lot harder because there is a much higher proportion of poor condition containers being touted for sale, simply as they have been damaged and are no longer viable to repair to a usable standard.
Demand for shipping
The Coronavirus pandemic has had many effects on the industry, but the main one that comes to mine was the total shut down in China Q1 2020, which lead to a major ‘imbalance’ in global container stocks. As China’s factories began returning to work with demand at a record high, they found themselves short of empty containers because all of the existing empty containers were still stuck in locations such as Europe and the USA, waiting to return to China to get loaded again.
As shipping demand has exploded, any dormant or parked-up vessels that could not find work before the pandemic are being snapped up at record prices. There is also a new wave of super-large container vessels hitting the seas. All of these new boats have created a need for many more shipping containers ‘within the network’ to keep them full. As a very rough idea, a shipping container vessel needs approx. 3-4 times it’s capacity in empty containers for it to run efficiently (again this is an oversimplification – but if a vessel is carrying one load, it wants another full load of containers waiting for it at its destination, and it has also just dropped another load of containers into the port it has come from).
In addition to this, the sudden spike in demand, and the coronavirus itself have caused many localised congestion issues around the world. Recently this has been best documented in trade heading from Asia into the USA, with up to 40 vessels waiting for an average of over 1 week to be able to berth at west coast USA ports.
Staff at these ports have also been physically affected by the virus, so they are running their daily operations with fewer key staff, which has a knock-on effect on their productivity.
This situation can have a massive effect on the available container fleet. If 40 vessels are each carrying 10,000 containers, and it takes 8 days to dock rather than the normal 2 days, then to service goods going from China to the USA and back on direct service, will take twice as many boats and a lot more shipping containers than normal – all to simply keep the same volume of freight moving. We can see from this example that around 400,000 shipping containers are sitting waiting to dock in the USA, but it also now takes longer to get those containers from the port to a warehouse and back to the port. Therefore, it is very likely in this example there are another 100,000-200,000 shipping containers wedged ‘in the system’ within the USA that were never needed before.
Given there are approx. 18 million shipping containers ‘in service’ (being used to move freight) one can’t go to market and gobble up a further 500,000 containers to help service one trade route without causing major knock-on impacts to the rest of the world.
Has Brexit affected shipping container prices?
On the whole – no. Brexit has had no quantifiable effect on the flow or pricing of shipping containers that we have seen. Brexit has made a minimal if any impact on the flow of shipping containers. If anything, container traffic to and from the EU we expect may have increased slightly as some supply chains are putting some or all of their freight from the EU to the UK in containers rather than sending freight on trailers through ports like Dover.
General supply and demand peaks, the factory price for new containers, the US$ to UK Sterling price, and the price of steel are all more important factors with shipping container prices.
Will prices return to normal – and when?
Much like predicting future oil prices, if we could guarantee future commodity prices with certainty, then – no offence – we would keep it to ourselves! We can make no firm guarantee but below we offer our best suggestions on what we think will happen.
We believe that the market is overcooking. Prices for new containers ex-factory are around 75% above average, and demand in the shipping industry for containers, but also container boats is the highest anyone has seen before.
Whilst short-term peaks in demand are being realised, and short to medium-term capacity issues (congestion) are causing an additional knock-on demand for shipping containers. Both of these demands will ease off over time.
When demand eases, owners of used containers will have more containers available for sale, and there is a good chance these same leasing companies and shipping lines will also start reducing their future orders with the factories.
We are seeing many predictions that shipping container prices will remain high in the factory until at least the end of 2021.
Patrik Berglund, CEO of Xeneta
As nations gradually emerge from the worst of the pandemic, and more equipment and capacity is introduced, it’s possible we’ll see some relaxation in rates… but, in the short-term, the carriers appear to be holding all the cards.
The current market is a struggle between carriers seeking to realise the opportunities and shippers who find themselves caught by tight capacity and few options to control costs.
According to the latest market intelligence from Xeneta’s Long-Term XSI Public Indices, which crowdsources rates from leading shippers and freight forwarders, the global benchmark has risen by 34.5% since the start of 2021. Its data shows that all major trade corridors have seen rate growth, and much of it spectacular, across the first five months of 2021. Xeneta says Far East exports and European imports are leading the way with both up by over 50% in 2021.
A lack of equipment and the ongoing ramifications of coronavirus, added to unforeseen factors such as the blocking of the Suez Canal, have squeezed supply chains, pushing capacity to bursting point. This leaves stressed shippers facing increasingly one-sided negotiations and, even when contracts are signed, the potential of rolled cargos and broken agreements as operators take advantage of massively lucrative spot rates.
Lars Jensen, CEO of the logistics consultancy SeaIntelligence
The Covid-19 pandemic unleashed a cascade of unique stresses on the global supply chain. Despite adjusting over the past year, freight companies are still battling the logistical hydra unleashed by the lockdowns.
Presently, shipping prices are surging, especially international shipping prices, due to shortages of container space amidst soaring global demand. Contributing to this expensive logistical bottleneck is the global dislocation of freight containers, congested ports and labour shortages, among others. It’s multiple different bottlenecks all at the same time…like a train wreck in slow motion.
Lack of capacity has forced freight companies to raise rates, and experts say the trend will continue through 2021. International shipping prices, like ocean freight rates, are sky-high because of issues brought on by the pandemic. All evidence suggests these snafus will take some time to sort out.
Don Miller, Chief Sales and Marketing Officer at Globe Tracker
Well, number one what we have realised is Coronavirus is not going away, there are variants. I think travel will be more limited and the nature of selling a product is going to change forever. Previously, you had opportunities at trade shows, and trade shows are now virtual, so all these people have to learn new skills of how to get involved and how to get your solutions out there digitally more than ever before.
What we have found is that in this market now because people weren’t going out to lunches and weren’t travelling so much they had mandates to continue their projects so in fact telematics and IoT was one of the things that they picked up. We have actually seen business increase due to the fact that they were looking to complete projects that they may have said had less priority, as they have more time on their hands.
I see a future where we are going to be in a position where each person within a shipping line will actually be able to see real time data visualisations tailored for their individual roles, because you can use IoT in so many ways, but data is just data unless you filter it, clean it and put it in the right place.
Step one in the AI journey has always been to deploy IoT. This allows you to collect large amounts of real time data. Once you can get hold of data you can start to run the analytics and the artificial intelligence around it, so I think the shipping industry is going to see some big jumps in the next few years, once they start analysing that data and using it to create different algorithms with artificial intelligence, new solutions will be developed, and this will cover more than just shipper related issues. There is already the start of predictive navigation routing for the cargo ships, based on ocean currents and weather, which resulted in optimisation of bunker fuel usage.
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Rebecca Morpeth Spayne,
Editor, International Trade Magazine
Tel: +44 (0) 1622 823 922