Suez Canal Blockage Pressures Global Container Supply

Date: Tuesday, March 30th, 2021
Source: The Wall Street Journal

HONG KONG—The blockage of the Suez Canal exposed another weak link in already-strained global supply chains: a shortage of shipping containers needed to move goods around the world.

That shortage—which emerged last year and has persisted recently—is likely to get worse even though the ship that was blocking the canal, the Ever Given, was freed on Monday. Thousands of shipping containers have been stranded in ships idling at the canal, and many more are on vessels that were rerouted around the southern tip of Africa, a trip that takes about two weeks longer.

All those containers won’t be arriving in ports when originally expected, with potential domino effects for the world’s importers, exporters and manufacturers.

“The main impact of the Suez blockage would be the delay in the return of ships and boxes coming back [to Asia] from Europe, and the effects could be felt in the coming two months,” said Hua Joo Tan, an analyst at Liner Research Services in Singapore.

Meanwhile, ports that are already strained from Covid-related issues might become more congested as the canal reopens. That is because a sudden traffic flow through the Suez could send a flood of ships that are behind schedule to skip docking in smaller ports and head to bigger ones to try to make up for lost time.

As a result, waiting and unloading times at some ports could lengthen as vessels drop off more containers there.

Engineers on Monday finally freed the Ever Given after tugs had dislodged the bow of the 1,300-foot ship from the eastern bank of the canal.

A.P. Moller –Maersk A/S, the world’s largest container vessel operator, said Monday that the company and its partners had three ships backed up in the canal and 29 vessels waiting to enter it, with more expected to reach the canal Monday. The company redirected 15 vessels around the Cape of Good Hope. It said it could take six days or more for the complete queue of backlogged ships to pass through the canal as it is cleared.

“Even when the canal gets reopened, the ripple effects on global capacity and equipment are significant and the blockage has already triggered a series of further disruptions and backlogs in global shipping that could take weeks, possibly months, to unravel,” A.P. Moller–Maersk said.

Shipping containers will be part of the problem. The giant boxes, typically 20 or 40 feet long, are the pack horses of global trade, filled with everything from coffee machines to furniture to industrial gear and stacked one atop another. Their invention, in the middle of the 20th century, made international shipping cheaper and easier and helped usher in the modern era of globalization.

Since last September, however, major shortages of containers have frustrated exporters, as global demand for goods like laptops and toys surged during the pandemic. Covid-related protocols at ports reduced staff and made it harder to load and unload the boxes quickly.

Turnaround time for some containers nearly doubled and the price of shipping them jumped. Some exporters scrambled to book available containers months in advance, despite higher costs.

“Initially, we thought the lack of containers was only a short-lived problem and never expected it to last this long,” said Zhu Guojin, a consultant at Jizhi Supply Chain Service Yiwu Co., which helps Chinese factories ship goods such as kitchen appliances, yoga mats and toys, mainly to the U.S. and Europe.

In normal times, before the pandemic, it usually took up to two weeks for a container box departing from China’s eastern port of Ningbo to arrive at Los Angeles, and another two weeks to return following a five-day stopover at the port, Mr. Zhu said. More recently, it took at least two months for the boxes to return.

Mr. Zhu said that as long as the canal can resume traffic within a week, its impact on container shortages and freight rates should be moderate. “We’ve weathered through such an unusual period” of shortages, he said, which means many companies will be more prepared.

Still, ports are preparing for some fallout from container delays and other problems. Modern Terminal Ltd., which operates container terminals in Hong Kong’s Kwai Tsing Container Port, said in a statement to The Wall Street Journal on Monday that it hasn’t seen any impact from Suez closure so far.

But “over the next few weeks, we expect that ships will start experiencing delays causing disruption to cargo flow which will have an impact on cargo volume going through ports in the world including Hong Kong and mainland China.”

A logistics director at a global retailer said his company is already reeling from container shortages caused by lockdowns in Western countries last fall. Containers weren’t recirculated back to Asia as they remained stuck in ports, and rising costs had only just barely stabilized when the Suez Canal was blocked, he said.

He said he had received word from Maersk about its rerouting of 15 of its vessels. But it was unclear to him whether his goods are onboard these ships, when they might arrive or whether there are additional charges. If the vessels can’t return to Asia quickly enough, products manufactured there won’t be able to go out, and he will have to compete with other companies to find space to store the goods, he said.

Precisely how many containers will be arriving late in ports is unknown. The Ever Given alone is large enough to carry 20,000 containers. In all, there are more than 300 ships backed up at the canal, not to mention the ones that are rerouting.

Marco Leung, a manager at Hoi Tong Logistics, a Hong Kong-based freight forwarder, said he has been communicating with container-shipping operators about when they can resume normal operations to accommodate people who are moving from Hong Kong to the U.K., but they failed to offer any visibility.

“Without any updated sailing schedules, we’ve told our customers to hold up sending their stuff to the U.K. even though they’ve settled in there,” he said, adding that those consignments, which include furniture, clothes, home appliances and pianos, are now stored in the freight forwarder’s warehouse awaiting clarity on sailing schedules.

Strong demand for consumer goods from U.S. consumers is expected to keep the pressure on, especially after the $1.9 trillion stimulus package Congress passed earlier in March. The United Nations Conference on Trade and Development is projecting that global maritime trade will expand by 4.8% in 2021 after shrinking 4.1% last year due to disruptions caused by Covid-19.

Building more containers could help, but won’t solve shipping delays in the short term.

“Container manufacturing is concentrated in China, so there isn’t anything that authorities outside of China can do,” said Hua Joo Tan of Liner Research in Singapore. Container makers have increased production and remain fully booked until the end of June, he said, adding that some carriers, however, have held off buying new containers as purchase prices have doubled since last year.

Other shipping experts noted that cranking out new boxes only offers temporary relief, as the rest of the shipping industry has to have the vessels and port capacity to handle them.

“It’s not just about the boxes, you need an upgrade to the ships and ports to catch up with the cargo flow,” said Eric Lin, head of APAC Transport at UBS Global Research in Shanghai. “This single incident may lead the shipping industry to rethink what’s the best way to move cargo, and whether it is always the bigger the better.”

In the meantime, companies are looking for other options to sidestep the shortages.

Dreame Technology, a Chinese company that produces household appliances such as vacuum cleaners, switched to railway for deliveries to Europe for the first two weeks of April to avoid congestion on sea routes, even though that leads to a 27% increase in overall logistics cost, said Justin Li, the company’s international logistics manager in Suzhou.

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