Expensive Shipping Containers Mean Rough Sailing for Global Trade

Date: Wednesday, February 23, 2022
Source: The Wall Street Journal

The worsening productivity and rising cost of shipping a container are sinking hopes that the world’s supply-chain problems will ease anytime soon.

Shipping experts, economists and company executives say any end-of-year optimism that kinks in global supply chains would work themselves out in the first half of 2022 has faded.

Ports in the U.S. and Europe are clogged and prices for moving goods around the world are rising. In Asia, congestion worsened in the run-up to the Lunar New Year as companies snapped up capacity to get goods sailing before factories shut for the holiday early this month.

“We’ve got clients requesting to delay shipping out items again this month,” said Jian Liu, an international sales representative at a company that makes refrigeration equipment in the coastal city of Taizhou in eastern China.

Clients usually ask sellers to delay shipping items out when they can’t get containers, book slots on vessels or get dock space at their final destination at a reasonable price. The company has reduced its planned production since April 2021 to avoid making more products than it can easily ship, Mr. Liu said.

The squeeze on global supply chains means Western consumers can expect little respite from rising prices, keeping the pressure on central banks to tighten policy to suppress inflation.

The Federal Reserve has signaled it expects to begin nudging up short-term interest rates in the U.S. in March. The Bank of England has raised rates twice since December and the European Central Bank has signaled it may also lift borrowing costs before the end of the year, abandoning earlier guidance that it would wait until 2023.

The plight of the average container offers a window into the snarled-up state of global supply chains. On a variety of measures, 20- and 40-foot steel containers—the workhorses of global commerce—aren’t skipping back and forth across the world as frequently as they were before the pandemic.

In 2019, a container on the trans-Pacific route from Asia to the U.S. took an average of 45 days to leave the exporter’s gate, cross the ocean and be ready to collect by the importing company, according to data from Flexport Inc., a freight-forwarding technology company. As of Feb. 6, it took 112 days, up 2% on a week earlier and 8% higher than the average time taken at the end of November.

Another way to gauge container productivity is how many times it is handled in port in a year. Data from Drewry Shipping Consultants Ltd., a maritime-research company, shows the average container was moved 20.1 times in 2018. Last year, that had fallen to 17.8 times and isn’t expected to change in 2022.

“The boxes are much less productive than they used to be,” said John Fossey, head of container equipment leasing and research at Drewry.

The container squeeze began in 2020, when Covid-19 caused shipping companies to cancel sailings. “That left millions of containers in the wrong places,” said Lars Jensen, chief executive of Vespucci Maritime, a shipping-industry consulting firm.

Today, he estimates that around 11% of the global container fleet is stuck somewhere in the world, either idling on a vessel waiting to be unloaded or lingering in port awaiting pickup or a slot on an outgoing vessel.

A regional sales representative of Cosco Shipping Lines Co. in China’s Guangdong province said congestion at the southern ports is still concerning, adding that the company is planning to allocate more of its ships to overseas use from domestic use in the first half of the year, as it is having trouble getting ships back from abroad.

Policy makers and corporate executives had hoped 2022 would bring relief. There were tentative signs of an improvement in the second half of 2021. “Orders of items for Christmas seasons were jammed in September and all shipped out by October last year, and after that the costs cooled off a little,” said Bryan Zheng, founder and chief executive of Livall Tech Co., a Shenzhen-based tech startup that makes cycling helmets.

But shipping-industry experts say costs are rising again, as a lull in activity following Christmas in the West and Lunar New Year in Asia passes. Shipping a 40-foot container from Asia to Europe right now costs between $15,000 and $20,000, compared with $2,000 in 2019, Mr. Jensen said.

Prices have risen even as container manufacturers, most of which are in China, crank up production. Capacity increased in 2021 by the equivalent of more than 7 million new 20-foot containers, bringing the total available to almost 53 million, according to Drewry data.

A manufacturer in Zhejiang province that makes catalytic converters for motorcycles and cars is facing further increases in its shipping costs, according to a person in the company’s overseas sales department. Costs have ticked up slightly after the Lunar New Year. “We were told the shipping companies will start raising the costs in March,” the person said.

Covid-19 is again clouding the outlook. China’s zero-tolerance virus strategy, which closed the port of Ningbo-Zhoushan in August, has led to lockdowns this year in cities including Shenzhen and Tianjin. That has disrupted traffic into and out of nearby ports, analysts say, by keeping truckers and dockers from work even if ports have so far remained open.

“Covid is gumming up the works again,” said Craig Botham, chief China economist at Pantheon Macroeconomics in London.

There are promising signs that in some corners of global trade bottlenecks may be easing, according to analysts. Economists at HSBC said in a report that manufacturers’ order books and other data suggest demand for electronics is beginning to cool. Economists at UBS in a recent note to clients said factory production has increased in parts of Asia as governments in countries other than China ease Covid restrictions.

But the big problem, shipping-industry experts and economists say, is still insatiable Western demand for consumer goods. Annual port throughput in 2021 was the equivalent of an estimated 849 million 20-foot containers, up 5% on 2019, and is forecast to rise again this year, to 888 million 20-foot equivalent units, according to Drewry.

“If global trade is a pipeline, we are trying to jam a lot more through a pipeline that can’t really get any bigger,” said Chris Rogers, principal supply-chain economist at Flexport in London. “It is not going to get better until demand starts to fall.”

 

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