Global container shortage drives spike in shipping rates, but brings windfall for Chinese manufacturers
- A shortage of containers and unexpected demand for delivery by sea has driven a surge in international freight rates in the second half of the year
- The shortfall is driving up costs for some Asian businesses, but proving a boon for Chinese container manufacturers who are running close to full capacity
Freight carriers are facing a shortage of shipping containers amid a wave of demand for delivery by sea, helping drive up rates and increasing supply chain costs for some businesses across Asia.
Triton International, one of the world’s largest container leasing firms, said in a presentation to investors last month that pick up in demand for its containers had sped up in the third quarter and utilisation was nearly at full capacity.
The company has ordered US$725 million worth of containers for delivery this year, but order volumes for the fourth quarter have been limited by manufacturing capacity – mainly in China, which is the world’s largest producer of containers.
According to Triton, all available dry containers are booked and Chinese factories are running at full capacity, taking orders for delivery in February and March.
In August, container production in China increased by more than 61 per cent from a year earlier to 7.8 million square metres (84 million sq ft), according to the China Machinery Industry Federation. This marked the first time growth had turned positive since August 2018.
Philip Damas, head of logistics consulting firm Drewry Supply Chain Advisors, said although some of these factors would impact prices through to the Lunar New Year, “spot rates have peaked”.
The spot sea freight rate from Shanghai to the west coast of the United States rose more than 80 per cent since June to US$3,848 per 40-foot container in the first week of October, while the rate to the east coast surged nearly 70 per cent to US$4,622, according to Shanghai Shipping Exchange.
US seaborne imports of containerised freight climbed 14.8 per cent in September from a year earlier, according to Panjiva, a trade data platform owned by S&P Global Market Intelligence.
Justin Hatch, senior vice-president in charge of Southeast Asia operations at Williams-Sonoma, a US retailer of kitchenware and home furnishings, said Americans were investing in their homes like never before as more expected to work from home as part of the new normal.
As US demand picked up, the company’s suppliers in Vietnam were having problems finding containers, Hatch said.
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“Sometimes a factory needs a 40-foot container but can only find two 20-foot containers, and that’s an issue because the factory has to pay terminal handling charges and documentation fees at a fixed rate, so it’s US$300 for one 40-foot container, and US$600 for two 20-foot containers,” Hatch said.
Damaged and unusable containers have also been dropped off at factories, a sign that shipping companies are reaching the bottom of their supply, he added.
A project manager at a Ho Chi Minh City furniture company, who was not authorised to speak to the media, said she was now requesting containers 45 days in advance to ensure availability, as opposed to two weeks previously.
Chinese container manufacturers, on the other hand, expected business to improve for the rest of the year.
China International Marine Containers (CIMC), the world’s largest container maker with a 40 per cent market share, said in a half-year interim report that purchases would increase significantly in the second half, due in part to a recovery from the pandemic and a seasonal boom in the third quarter, according to a filing to the Hong Kong stock exchange.
In the first half of the year, CIMC’s container sales were down 25 per cent from a year earlier to 8.4 billion yuan (US$1.25 billion).
It takes as little as three weeks to make a container, which are typically leased for at least 15 years before being sold for other uses such as storage.
Skyrocketing shipping costs have caught the eye of international authorities. The US Federal Maritime Commission, which regulates oceanborne international shipping for the US, and the Chinese government have warned in the past two months that if the price of sea freight increased, it could lead to antitrust action against shipping alliances.
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Freight carriers have reintroduced capacity this month to meet demand and clear a backlog of containers from across North Asia.
“While expectations in the market remain that demand will begin to slow down as we enter the fourth quarter, carriers have proved time and time again over the course of the year that they are capable of supporting rates using void sailings,” an analysis by Panjiva said last week.
“It is also in their interest at this point to keep rates strong as they will begin to negotiate annual contracts at the start of 2021, and so want to be in a position of strength when these conversations begin.”
