Surge in container market demand and container shortages since the second half of 2020 have significantly pushed up freight rates and caused widespread congestion at major ports around the world . The container shipping market is moving toward a “new normal,” with high freight rates and cyclical upturns in the market likely to last for several years. Both shippers and logistics companies may face difficult times.
The problem of container shortage is increasingly out of the narrow industry perspective and begins to attract the attention of the mass media. The New York Times reported on this problem, which is not new in the industry, and commented that the shortage of containers has led to inflation, and consumers will be the final payers – “demand…has exceeded the supply of containers,” And the epidemic in the United States has eased, and retailers can pass on higher shipping costs to consumers without being accused of price gouging – “The cost of almost everything is rising.”
Many months after the container shortage first emerged, how serious is the problem still?
Equipment leasing companies are the most vocal entities that can answer this question. They order containers from a very small number of Chinese manufacturers and then rent these boxes. To the shipping company, the shipping company will also order directly from the factory.
Two of the top publicly traded leasing companies—Triton International (NYSE: TRTN) and CAI International (NYSE: CAI)—announced their 2021 financial results last week. Comments were made on container availability during the first quarter results.
The tighter the container capacity, the more profitable the container rental market will be. Cargo shippers will have to pay more transportation fees to liner companies, which is bad news for U.S. importers and exporters, but equipment lessors are happy that the “future” will be smooth sailing until 2022.
Tim Page, interim chief executive of CAI International, one of the two top listed leasing companies, said on a conference call with analysts: “Shipping Companies are showing no signs that the supply constraints they were looking forward to are easing. So … the outlook for us is pretty good, at least until the end of the year, and probably well beyond that.”
Container lessors: only 2-3 weeks of supply
According to US industry media reports, Three Chinese companies, CIMC, Oriental International DFIC and Xinhuachang Group Co., Ltd. CXIC, produce about 80% of the world’s containers. Production has increased recently, and it is estimated that container production capacity will increase by 6%-8% this year. But even so, the pace of container construction is still not enough to ease market tensions.
O’Callaghan, head of global marketing and operations for Triton, another top listed rental company, said on the company’s conference call that although the plant was closed late last year and stepped up container production at the beginning of this year, but the inventory of new containers is still very low. “Those big guys (containers) sitting on the ground waiting to be moved out are probably only two to three weeks’ supply.”
The price of containers is a manifestation of continued scarcity. Currently, the price of a new container is US$3,500 per cost equivalent unit (CEU, which measures the value of a container as a multiple of a 20-foot dry cargo unit), compared with US$1,800 per CEU at the beginning of 2020 and US$2,500 per CEU at the end of 2020. Over the past three months, costs have remained essentially stable at $3,500 per CEU.
Recent price increases are even more extreme in the second-hand container market. Container xChange reports that second-hand container prices in China have almost doubled, from $1,299/CEU in November to $2,521 in March.
According to Triton’s O’Callaghan, “a shortage of available sales containers is causing prices to rise week-on-week as stocks are depleted”.
Why are the new cabinets still insufficient?
This year’s production increase follows a period in which orders fell below market replacement requirements. According to Triton CEO Brian Sondey, “A lot of the container production that happened this year was, in part, to make up for the low production in 2019 and the first half of 2020.”
CAI’s Page believes that another reason why containers are not more abundant is that Chinese factories have not expanded production capacity, and “manufacturers have shown no signs that they will add more containers.” Volume.”
When asked why leasing companies were unable to gain market share and drive down prices, Page said, “If container manufacturers’ behavior doesn’t completely change – no one seems to think this is possible – they (manufacturers) would have to be willing to produce containers and fight for market share, producing far more containers than demand, to have a chance of someone (in the leasing space) having a surplus of containers and having them in the market Prices are driving the market.”
In other words, Chinese factories are controlling production to keep their new box prices low. This negates hopes on the part of shippers – the market could be flooded withA surplus of new containers, thus lowering freight rates.
When will the shortage of containers be alleviated?
Easing the scarcity of containers is not just a production issue. Many containers have been severely delayed due to problems such as port congestion and the Ever Given accident in the Suez Canal, and their turnover has failed. Only when these blockages are cleared will more containers become available.
According to Triton’s Sander, the slowdown in disrupted “container velocity” began with the COVID-19 lockdowns in early 2020 and then later in 2020. It started with “a flood of containers that overwhelmed the port’s ability to move containers in and out” and was followed by the ‘icing on the cake’ – the blockage of the Suez Canal.
CAI’s Page also said there is now an unusual situation occurring at ports of destination for Chinese cargo. Ships are so eager to turn around that they “are forced to return to China Leaving empty containers behind.
“Several of our major customers report that almost every ship leaving China and other export regions is fully loaded, but Due to the tight shipping schedule and the need to turn around quickly, they could not wait for all the empty containers. When they left, there were 5%-8% fewer containers in the (return) leg than in the (previous leg) leg. “
Triton’s Sander said: “What we are hearing is that most customers (liner companies) do not think these bottlenecks will evaporate quickly. But they also don’t think these bottlenecks are necessarily permanent… There’s no doubt that as bottlenecks ease, that could free up container capacity.
“So, we’re all trying to figure out what this transition process is going to look like. I haven’t seen any of our customers express confidence that they can This is a strong period right now, debottlenecking their business. Our general view is that it will probably continue until trade slows down. Who knows when exactly that will be. But I think the bets are probably on some date towards the end of this year or early next year. At this time, maybe the trade world will begin to return to normal.”
Strong demand, shortage of containers, high freight rates, congestion and delays have become the “new normal”
Lars Jensen, an analyst at Vespucci Maritime, a maritime analysis agency, said that shippers and logistics companies will face a series of difficult years, and a cyclical recovery before 2024 will be beneficial to high-end shipping companies. The stability of freight rates benefits container shipping companies.
He pointed out that the “new normal” in the container market is mainly the result of the blockage of the Suez Canal and the new coronavirus pandemic.
“Currently, it will take 4-6 months before we have a real chance of getting operations back to normal. But that requires the world to be in some sort of normalcy , and that is not the case.” Jensen said, “Container liners are in the process of digesting excess capacity at a time when demand is extremely strong. Excess capacity has long been a feature of the container market to cope with congestion.”
In the current situation, the number of ships planned to enter the market is much smaller, while demand will continue to soar. Jensen stressed that the ships currently on order to meet growing demand will not be delivered until 2024.
This also means that the container industry will face a cyclical upswing, which will benefit container liner companies and cause higher costs for customers.
This trend can be felt in logistics companies such as DSV. Anders Oldenborg, product shipping director of DSV Air & Sea, described the period of December, January and February as Described as “crazy, it’s the likes of which we’ve never experienced”. The disruption of the Suez Canal at the end of March compounded the misfortune.
He said: “Nothing is working because of the lack of capacity. There are not enough containers to meet the demand we are seeing. Carriers are fully loaded by June “As a result, DSV has begun considering chartering vessels to cope with the current market pressure,” he added. Oldenborg said: “We have no intention of operating container shipping, but at the same time, when we encounter challenges like now, we feel the need to look at available alternatives.”
Regarding DSV’s interim report for the first quarter of this year, its CEO Jens Bjørn Andersen emphasized that the current situation of high prices and low quality is unfortunate for shippers.
“This is an incredibly bad combination. Cargo transportation is more expensive than ever and the quality of shipping services is worse than ever.” Andersen said in the interim results the report said. “From what we’re seeing in the market, it’s not inconceivable that the abnormality will continue through the rest of the year. And then we’ll see what else happens.”