Shipping shortages: What's causing the shipping crisis?
Freight shipping has been in a unique and unusual predicament in recent years.
An unforeseen cascade of events caused by the pandemic caused worldwide shipping shortages. Classed as a crisis, because the lack of containers rippled an effect on entire supply chains, disrupting trade on a global scale.
In early 2020, a global shortage of shipping containers has disrupted the international trade industry — creating costly difficulties for businesses worldwide.
The shipping shortages resulted from multiple factors, including the:
Transition to e-commerce shopping.
Increased demand from China.
That led to supply chain disruptions and shipping delays. When the pandemic began, containers took an average of 20% more time to reach their destinations.
The container shortage became a global issue, but its effects were most visible in Asia because most containers are manufactured there. To understand why the flow of containers was massively disrupted, it’s important to first understand the domino effect that led to the situation.
Let’s start at the beginning.
As the pandemic spread out from its Asian epicentre, countries implemented lockdowns, halting economic movements and production.
Many factories temporarily closed, causing large numbers of containers to be stopped at ports. To stabilize costs and the erosion of ocean rates, carriers reduced the number of vessels out at sea.
Not only did this put the brakes on import and export, it also meant empty containers were not picked up. This was especially significant for Asian traders, who couldn't retrieve empty containers from North America.
Then, a unique scenario developed. Asia, the first hit by the pandemic, was also the first to recover.
So, while China resumed exports earlier than the rest of the world, other nations were dealing with restrictions, a reduced workforce and minimal production.
A consequence of this is that almost all of the remaining containers in Asia headed out to Europe and North America, but those containers did not come back quickly enough.
Massive workforce disruptions due to coronavirus restrictions in North America affected not only ports, but cargo depots all across the country as well as inland transport lines. Without adequate staffing, containers started to pile up, a main factor leading to shipping shortages.
As borders tightened, customs became more complicated to clear as well, worsening congestion. In addition, there were rapid shifts in trade lane demands that were challenging for carriers to adapt to.
There was no time to clear the huge backlog of containers with limited workers before more arrived. In September 2020, North America faced a 40% imbalance, so for every 100 containers that arrived, only 40 were exported.
Sixty out of every 100 containers continued to accumulate, which was staggering considering the China to US trade route sustained, on average, 900,000 TEUs per month. That was during a normal year; the shipping volume was at record highs in the forthquarter of 2020 ( up 23.3% compared to 2019, according to Descartes Datamyne).
While continuously assessing the situation, the transpacific volume from Asia headed stateside wasn’t slowing, offering no recovery time.
Since January 2022, container shipping rates have been declining on all East to West shipping routes.
The Drewry World Container Index (WCI) decreased by 0.3% to $2,119.96 per 40-foot container the week of Dec. 22. This was the 43rd consecutive weekly decrease, representing a 77% drop compared to the same week last year.
While the latest Drewry WCI of nearly $2,120 was 80% lower than its peak of $10,377 in September 2021, it remains 49% higher than the average pre-pandemic rate of $1,420 in 2019.
World Container Index Assessed by Drewry
Freight rates from Shanghai to New York fell by 2% to $2,889 per forty-foot-equivalent unit (FEU) — a $63 difference. In comparison, rates on Shanghai to Rotterdam rose by 2% to $1,706, an increase of $32.
With stagnating market demand, an influx of large containerships is expected to hit the water in 2023.
Over the next two years, a total of 5.1 million twenty-equivalent units (TEUs) will be added to the fleet - 2.3 MTEU in 2023 and an additional 2.8 MTEU in 2024. By 2025, the container ship fleet is anticipated to grow by 28.3%, with an additional 7.3 MTEUs of capacity hitting the market.
With the possibility of tonnage supply surpassing vessel demand again next year, the liner shipping market might face a structural overcapacity issue. Pending EEXI and CII carbon regulations could lead to a decrease in the number of ships available, as many vessels will need to slow down their speed to meet these rules.
Older ships unable to meet the new standards will have to retire.
Read the full November 2022 Ocean Freight Market Udpdate.
Despite widespread worries about container availability in recent years, there is good news: the container shortage crisis has improved.
Demand is slowing and the balance of shipping containers is stabilizing, with more suppliers having entered the market, resulting in lower prices.
While the situation has improved, we strongly urge our customers to book shipments as early as possible.
Hillebrand Gori recommends all shippers have shipping insurance, to minimize the risks associated with transporting your beverages internationally.
We understand the risks for your goods if delays occur at ports with high temperatures. In the event of a temperature-controlled container shortage, we can help protect your wines and beers with our insulation liner, which reduces temperature contrast to an average of 8-11 degrees Celsius.
We have over 50 temperature-controlled warehouses in main wine-producing and beverage consumption areas, where you can safely store your beverages and goods. Contact us today.
Our teams are ready to help you every step of the way.