In a crisis of geography- the global shipping industry

Shipping container shortages in manufacturing nations drives up global freight prices and creates trade bottlenecks, while empty containers pile up on the far side of the world

The World Trade Organization (WTO) has noted global trades recovery from Covid-19 is strong but may be short lived, with a noted downturn in key indices such as automobiles and export orders. It also notes that container shipping may have dipped since the start of last year. The WTO puts this down mainly to continuing risks from Covid-19 variants and unknowns surrounding global vaccination efforts.

Another factor however is the ongoing shipping container crisis. 85 percent of global trade relies on shipping, but a shortage of containers has created a bottleneck for global supply chains, and any fast recovery, by driving up prices for imports, creating scarcity of goods and potentially hitting consumers with increased prices.  

The Cause: 

At basis the container crisis is due to the dramatic increase in online shopping in the US and globally over the pandemic, with consumers purchasing goods of which more than a third have to be shipped from China. This has coincided with a decline in China’s own imports from the US and Europe.

The result is shipping containers piling up in US ports in unprecedented numbers, causing supply chain disruption courtesy of the increased volume of goods coming in having to be processed, and then these now empty containers sitting discarded as there’s been nothing to take back in them  to China. Without any return goods it is usually uneconomical for companies to ship back empty containers and even before the pandemic this was a problem, though on a smaller scale.

Meanwhile in China, who manufactures 85 percent of the world’s shipping containers, Covid-19 related disruption has meant that container production has not been able to keep up with the rapidly rising demand and due to the increasing dearth of containers, most of which are now stuck in foreign ports.

The Impact:

This all means that global manufacturers are facing increased costs, and longer waiting times in Chinese ports, severely impacting both goods and also key raw materials, such as metals. 

While shipping companies have started to take empty containers back with them due to their increasing value, this is a slow process and the early continuation of the practice of discarding them has led to industry-wide shortages of containers, or useless oversupply in the wrong geographic areas.

This is compounded by the spill-over of the increased demand for goods in major markets. Less traveled routes primarily to Africa or outlying markets like New Zealand have had cargo ships moved to the traditionally busier US-Asia and Asia-Europe routes to try and cater to the increased volume. This has meant firstly that containers discarded on these routes have little hope of being put back into circulation, and secondly that costs in these places have risen far more than most. For instance, the price of shipping containers to Kenya from China has soared 600 percent compared to the 2019-2020 China to US Pacific 208 percent rise, and the 60 percent increase for China to Europe as estimated by the Baltic Exchange.

An end in sight?

The shipping industry and governments have though begun to tackle the issue; most manufacturing states are seeking to re-deploy cargo ships onto busier routes (though this hinders attempts to bring down prices for outlying markets), and China has committed to increasing the output of shipping containers, even implementing an 11 hour working day for the industry to catch up. However, there is no easy fix as the situation is “unprecedented”. Some experts expect it to ease by the end of the year, though others expect it to depend upon the success and speed of vaccination efforts which can restore logistics labour capacity and productivity.