Regulators scrutinise box shortages as container manufacturers ramp up production

Date: Friday, December 18, 2020
Source: Splash 247

Federal Maritime Commissioners Carl Bentzel and Daniel Maffei have sent a letter to John Butler, the president and CEO of liner lobbying group the World Shipping Council, expressing concern about reports that ocean carriers are refusing the carriage of US exports. This year’s container shortage is expected, however, to be a blip with a new report out this week predicting container manufacturing, principally out of China, could leap by as much as 40% next year.

In their letter, the American commissioners noted that US exporters should not bear the entire burden of volume fluctuations and surges in this unusual year for the industry, and emphasised that “it is imperative that we strive for a balanced trade to keep our supply chain fully effective and efficient, while maintaining vital export opportunities for the US agriculture and manufacturing bases.”

Strained supply chains brought about by limited available container equipment amid soaring demand has seen regulators and politicians around the world take a greater interest in the workings of the liner industry in recent months.

The letter sent by the two American regulators points out that the Shipping Act in the US specifically codifies the requirements to provide common carriage and ensure shipper access to ocean transportation. Section 41104(a)(10) of the act stresses common carriers may not “unreasonably refuse to deal or negotiate,” while section 41105 rules that two or more common carriers may not “boycott or take any other concerted action resulting in an unreasonable refusal to deal;” or “engage in conduct that unreasonably restricts the use of intermodal services or technological innovations”.

Defending liners as they get pilloried in the mainstream media this month with anxious families hearing of delays to their Christmas shopping thanks to snarled ports across the world, the World Shipping Council said last week the extraordinary situation seen in the ocean liner space was beyond anyone’s capabilities.

In a release entitled ‘Assessing the COVID Cargo Crunch’, the Washington DC-based group stated: “No one could have planned for the type of surges that are stressing the container transportation network today, because the demand swings are unlike anything ever seen.”

Facing criticism for not being able to supply enough containers to exporters, the lobby group countered: “Now is not the time to introduce dramatic change to the systems or processes. The challenge for all parties is to find ways to make the current system work better. This requires constant communication between service providers and shippers, and ocean carriers recognize the part they must play in that. It also means avoiding practices that only make the situation worse, such as making phantom bookings or skipping terminal appointments or holding on to loaded containers as a storage solution. The system will return to better equilibrium, and we must collectively do a better job of managing it through the crunch period.”

Consultant Drewry have discussed the ongoing box equipment shortages in releasing its latest Container Equipment Forecaster report. The consultants argue that the shortages are being driven by empty container repositioning issues rather than an inadequate global fleet.

According to Drewry, the global ocean-borne container equipment fleet is expected to end the year having declined 1.1% to 39.9m teu, compared to a 3.3% projected fall in 2020 global container port handling. This suggests that the former has more than kept pace with the latter.

However, as well known, 2020 has been a year of two halves: the first dominated by a severe trade contraction when carriers blanked record sailings; and the second half by a recovery in cargo demand, the extent of which took everyone, including BCOs, by surprise. Drewry estimates that global container port throughput declined almost 6% in 1H20 and boomed over 10% through the final six months of the year.

But despite this unexpected surge, the ratio of port throughput per shipping container, a key measure of equipment availability, only reached a reading of 20 in 2H20, which is not particularly high by historical standards. This is indicative of sufficient equipment fleet to support ongoing cargo demand. Rather, it is the disruption to container supply chains wrought by the unprecedented number of blanked sailings, which reached as high as 30% of sailings on some trades back in 2Q20, that led to the current shortage of empty containers in key cargo demand centres such as China.

Nonetheless, the surge in cargo demand has boosted investment in new container equipment. From a 35% contraction in global output in 1Q20, manufacturing has since recovered and is expected to reach 2.67m teu by the end of the year, according to Drewry, down 5% on 2019. But with demand for new containers remaining strong and factories reporting full orderbooks well into 1Q21, output in 2021 is forecast to leap as much as 40% with further growth anticipated in subsequent years.

“The ramp up of newbuild production will certainly help alleviate some of the ongoing container equipment shortages, but the greatest impact will come from a normalisation of cargo demand development and carrier sailing schedules, as Covid-19 related disruption unwinds through the first half of 2021,” Drewry suggested.


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