Shipping companies box clever to overcome container shortages

The humble shipping container includes a new status in the Covid-19 pandemic: hot commodity.

Shortages of the ribbed steel boxes that contain plied the global economy for a half-century are plaguing trans-Pacific routes specifically. The dearth is boosting the price of new containers and lease rates by 50%, snarling port traffic, adding surcharges and slowing deliveries heading in to the holidays.

A surge in Chinese exports and robust consumer demand in America help describe the tightness, and major shipping liners like Hapag-Lloyd are scrambling to reposition their bigger, 40 foot containers from less busy elements of the world. Nico Hecker, Hapag-Lloyd’s director of global container logistics, dubbed it a “black swan” moment.

The German sea freight company is “experiencing the strongest upsurge in 40 foot demand following one of the strongest decreases popular ever”, Hecker said in a post on the company’s website last week. “The containers must be returned to China as quickly as possible to be equipped for an expected strong fourth quarter.”

The squeeze turns up in an indicator developed by Container xChange, an online platform located in Hamburg, Germany. The most recent reading of its Container Availability Index was 0.04 for the 40-foot extra-tall boxes - the size popular for consumer products - in LA, while Shanghai slumped to 0.22. On a scale of zero to 1 1, the dividing line between surpluses and shortages is 0.5.

Dire predictions that global trade would collapse this year prompted container carriers to cancel sailings to underpin freight rates. Those forecasts proved much too pessimistic, though, and industry observers now say a sharp second-half rebound may mean container volumes for 2020 end up not far off levels reached in 2019.

Economists have long debated whether international commerce lifts all monetary boats and many nowadays agree that it does, in theory at least. However the market for a commodity like shipping containers is very much a zero-sum game, where winners and losers are decided by would you and doesn’t have their practical available supply.

“I’ve had no used containers on the market for 3 or 4 weeks now,” said Chris Osborne, managing director of Budget Shipping Containers in Birmingham, England. “I am missing out on sales, definitely, by devoid of the stock there but I’m also not losing them to rivals because they’re in the same boat.”

About 35 million shipping containers are used globally, making some 170 million full trips a year, according to Florian Frese, marketing director at Container xChange. About 55 million of these trips are created when they’re empty - on returns trips or as shipping companies realign them with the demand.

The current scarcity means importers are facing longer waits because of their goods and may pay extra costs to secure the transport equipment. The impact can ripple beyond the flow of goods between your world’s two largest economies.

“The more successful the China-US lane becomes, the more incentivised carriers are to divert containers from other lanes, increasing the prices on shipping in secondary markets,” said Eytan Buchman, chief marketing officer at Hong Kong-based Freightos, an online shipping marketplace.

“Historically, it has been a driver of higher intra-Asia rates, with spare containers found in Asia diverted to the trans-Pacific route.”

Shipping liners own roughly half the world’s containers, and the others are owned by lessors including Bermuda-based Triton International, whose US-listed shares jumped 34 % in the 3rd quarter, more than quadruple the upsurge in the S&P 500 Index.

Shares of Textainer Group Holdings, a San Francisco-based container lessor, surged 73 % in the last quarter and CAI International, a leasing firm also based in San Francisco, jumped 65 per cent.

“We hear from customers that they expect a fairly significant container shortage to stay through [to] at least Chinese New Year” in mid-February, Brian Sondey, Triton’s chief executive, said on a conference call in October.

He said leasing rates for new containers were up “more than 50 %” from the next quarter and its own inventory of 40 foot containers is really as “near full utilisation since you can get”. Triton ordered $350 million worth of new containers for delivery in the first couple of months of 2021.

The beneficiaries of such booming demand are Chinese manufacturers that dominate the global market for newly built containers, the cost of which has increased to about $2,500 each, from about $1,600 this past year.

Industry figures show the option of dry-freight containers produced in China were right down to about 250,000 20-foot equivalent units by the end of October, from 871,000 in May. Order books are full until April or May next year.