How the ongoing container shortage is disturbing global supply chains

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Have you recently tried to buy a computer, Peloton exercise bike or new furniture? If so, you may well have experienced an unexpectedly delayed delivery. You’d be in the same boat as millions of other consumers and corporate buyers in the western world. Though your order may have been stuck in one of the many thousands of containers on the Ever Given, the ship held up in the Suez Canal for months, the most likely reason for delayed deliveries is the global shortage of containers. The metal boxes that make global trade possible are in very short supply – with a domino effect on supply chains worldwide. And it all began with the COVID-19 pandemic.

COVID-19 and containers

In 2020, the global pandemic hit the world’s trading nations hard. As the flow of sea-borne goods diminished, shipping companies cut back on the number of vessels at sea. This not only impacted exports and imports; empty containers were no longer collected either. In the Americas, Asia-bound containers could not be sent back due to COVID-19 restrictions. China was the first country to get to grips with the pandemic and its production machine moved up a few gears. Chinese exports and imports would have recovered too if the containers hadn’t been on the wrong side of the Pacific. A second impact of the pandemic was the switch in consumer spending away from services (e.g. restaurants, pubs, fitness studios and other leisure activities) to online goods purchases. Services don’t need sea containers; goods do. The massive buying boom in North America and Europe sent the demand for goods made in Asia’s manufacturing hubs through the roof and there weren’t enough containers for all the prospective purchases. They are still very much in short supply – for a variety of reasons.

Biggest backlog of at least 2019

Handling containers in a major seaport is a complex operation involving highly trained personnel. When these port workers get ill with COVID-19, are required to self-isolate or otherwise prevented from working due to corona-induced restrictions, containers cannot be loaded or unloaded. On June 11, Reuters reported that congestion at container shipping ports in southern China was getting worse as the Chinese authorities ramped up disinfection measures to deal with a sudden increase in COVID-19 cases in the key manufacturing hub of Guangdong province. The “biggest backlog since at least 2019” saw more than 50 vessels waiting to dock in the Outer Pearl River. Maersk consequently announced delays of 14 to 16 days at Yantian Port.

The situation has still not eased. According to the Kiel Institute for the World Economy (IfW), in early July “the number of containerships waiting the Pearl River delta (was) usually high. Some ports, such as Yantian, have shipped less than half their usual number of containers. Currently, nearly 5% of the global containership capacity is tied up by congestion in these Chinese ports. That is more than during the first corona wave.”

What’s more, the current congestion in China isn’t the first time the pandemic has put a spanner in containerised trade flows. On 10 March 2021, 48 fully laden containerships were anchored in San Pedro Bay waiting to dock at Los Angeles or Long Beach, the busiest US seaport complex. Here, too, COVID-19 infections and fatalities amongst dockworkers in southern California had aggravated a situation that was already being impacted by the booming demand for containerised goods from Asia’s manufacturing hubs.

Year-over-year port congestion, port of Los Angeles

Capex boom

Consumers aren’t the only ones to have started investing in a big way. According to The Economist, capital expenditure (capex) by companies in America was rising at an annual rate of 15% by May 2021. Firms in other parts of the world are also boosting their spending and analysts at Morgan Stanley are predicting a “red-hot capex cycle”. In 2020, the historic dimensions of the corona-induced slump in the global economy had led companies the world over to delay their investment in capital goods. The economic recovery in 2021 is reducing this investment backlog. Overall global capital investment, Morgan Stanley forecasts, will “rise to 121% of pre-recession levels by the end of 2022”. The capex boom is also driving the global demand for containers to transport these capital goods.

Industry response

Maersk recently announced it would buy more containers to overcome the shortage. The global order-book for mega-containerships rose from 9% of the existing fleet in October 2020 to 15% in April 2021. To optimise container usage Hapag-Lloyd has speeded up container refilling and emptying times by around a quarter. They have even started using reefers to carry dry goods such as shoes, electronics or textiles – mostly manufactured in Asia – to customary reefer destinations, where the containers are switched on again to transport refrigerated goods. As Nils Haupt, Hapag-Lloyd’s Senior Director of Corporate Communications, says, “We are desperately looking for more capacity.”

Photo of MSC FLAMINIA by ship spotter Marcus-S

Better days ahead?

How long will the shortage last? Many industry experts expect the post-corona surge in demand due to pent-up consumer spending and the capex boom to continue for at least the remainder of this year. Hence, no let-up in the demand for containers is forecast in the near future. Nevertheless, Lars Mikael Jensen, Maersk’s Head of Network and Market East-West, thinks “the situation will improve, bottlenecks … (be) relieved, buying patterns likely to normalise … (and) additional vessels and containers entering the market in 2021 (will) mean that the current vessel and container shortage is temporary in nature”. In early July Maersk signalised that the congestion in Yantian was slowly easing. Yet both Lars Mikael Jensen and Nils Haupt are convinced that only closer cooperation between customers, shipping lines and ports will enable the shipping industry to be better equipped to tackle such situations in future. But will the current container shortage prove critical enough to convince stakeholders in a keenly competitive industry to improve their cooperation? Only time will tell.