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A critical crisis of container shortage driving up shipping cost for goods purchased from China
Many clients were/are shocked by the sudden and drastic rise of freight rates from China. In this article, we are going to talk about the pandemic impact on shipping from China and why shipping rates are so high now.
An unforeseen cascade of events caused by the pandemic has us facing a worldwide crisis of container shortage. Because the lack of containers has a ripple effect down the entire supply chain, disrupting trade on a global scale. The sudden rise of shipping rates from China has caught everyone by surprise. Desperate companies wait weeks and pay premium to get available containers. Compared with last March’s low prices, freight rates from China to the USA and Europe have surged 300%. Even rates from the U.S have gone up, though not quite as drastically. This affects everyone who needs to ship goods from China, particularly those e-commerce companies and consumers, who may bear the brunt of higher costs.
Where are all the containers?
So where have all the containers gone? Many are piled up in ports or inland depots and others are onboard vessels, especially on transpacific lines. The largest container shortage is in Asia, but Europe also faces a deficit.We’ll help you understand the domino effect that has led to the present situation.
Pandemic wave creates North America bottleneck
As the pandemic spread worldwide, countries implemented lockdowns, halting economic movements and production. Many factories closed temporarily, leaving large numbers of containers at ports. To stabilize costs and erosion of freight rates, shipping lines reduced the numbers of vessels out at sea. Not only did this put brakes on import and export, it also meant that empty containers were not picked up, which is significant for Asian traders, who couldn’t retrieve empty containers from North America.China quickly recovered from the impact, while other countries were and still are dealing with restrictions, a reduced workforce and minimal efficiency, thus these countries need more products from China than ever, especially consumer goods. China has been sending out a lot more exports to the U.S. and Europe than the other way around. A consequence is that, almost all the remaining containers in Asia headed out to Europe and North America, but those containers did not come back quick enough. Massive workforce disruption because of restrictions in fight of COVID affected only ports, but cargo depots, as well as inland transport. There was no time to clear the very large backlog of containers with limited workers before more started arriving. Without adequate staffing, containers started to pile up. North America currently faces a 60% imbalance, which means, for every 10 containers that arrive, only 4 are exported. And 3 out of that 4 are going back empty. So 60% continue to accumulate, the number is staggering considering the China-USA trade route remain 900,000 TEUs per month on average. (That’s during a normal year, the current volume is about 20% higher)
As a result, containers are stuck in the West when they are needed in Asia.
Carriers jump on lucrative transpacific profits
Container shipping rates have been surging on all East to West shipping routes since May 2020, eclipsing all historical highs, with the highest rate on transpacific. The Asia to US and Asia to Oceania trade routes have become so lucrative that carriers aren’t willing to wait for cargo before return to Asia, especially when the cargo isn’t available at port.Limited alternative
The shortage is further exacerbated by limited air freight capacity. Some high-value items that would normally be shipped by air, now have to choose sea freight instead.International flight volumes have plunged due to virus and travel restrictions. Airlines typically use the extra space at the belly of a passenger flight to carry goods. There were’nt many passenger flights, so not as much air service.
Container price
The limited access to available containers is also driving up the buying price of both new and used containers since seller know demand is such, that they can charge at a premium. Likewise, container leasing rates have rocketed up by around 50% in just 6 months.While some new containers have been ordered, they will not be ready right away. The pandemic has also hit the supply of steel and lumber needed to build containers. The shortage is like to last for another 3 months or more.
Conclusion
In a word, it’s simply a matter of supply and demand. The lack of options, combined with this crazy amount of demand, has led to this situation.Realistically we don’t see the global container shortage crisis returning to normal for the coming few months. It’s also predicted that freight rates will remain high. For your shipping from China, we strongly urge you should book shipments as early as possible. (UCS)
