Sea freight is the most commonly used mode of transport around the world with an estimated 80% of the global trade being moved by sea. With this being said, it is important to mention here that 60% of the sea freight movement is done through container boxes of different kinds. It was estimated that there are more than 530 million containers around the world in 2010 while there is an average of 17 million containers traveling around the world at any moment on board around 5,300 container vessels; most of them managed by the top 5 shipping lines (A.P Moller, MSC, COSCO, CMA CGM, and Hapag Lloyd).
Where are these containers now?
Having more than half a billion containers and still, we can’t see many around us, isn’t this interesting?
Well, most of these containers in normal circumstances are found either on board of the vessels, in container depot and yards, or being processed for loading and drayage to and from the seaports.
With continuous movement and having an overstock of containers for the vessels, then the demand should always be under control with no challenges.
Still, we are facing a container shortage in sea freight around the world that affected the shipping prices to spike and made them unstable.
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How did this shortage happen?
The COVID-19 pandemic that started in late 2019 created a lot of workforce restrictions and challenges that are still in effect today. There is a shortage in labor and therefore slower processing of containers. Keeping in mind that at the beginning of the pandemic, factories and companies paused their operations leaving their containers at the ports or in storage facilities.
The COVID-19 first hit China and moved westbound from there. therefore, The same way happened in recovery as it was Chinese exporters that were first to restart their operation and their export curve started to rise again. This only means that container movement out of China was increasing while the rest of the world was still trying to recover from the pandemic effect which led to an import-export imbalance. The largest container movement is taking place between China and North America over the pacific and this part is facing a 40% imbalance in the container movement. This means that out of each 100 containers reaching North America, only 40 containers are re-exported while 60 are staying.
Due to the previously mentioned reasons and with the changes in the supply chain, especially on the procurement part, the supply and demand of containers have continuously changed and it is not easy for the shipping lines to adapt to such rapid changes. Therefore, the safest option for the carriers was to reduce the number of operating vessels and this of course has led to the spike in prices that we are currently facing as it is costly to be shifting containers between the countries, This also explains the shortage of containers even though there is enough stock.
When can we see an end to this shortage?
Like any other industry, bottlenecks and process challenges may build up and grow fast and it may not be easy or quick to bring things back to normal. In fact, it will take even longer, if it ever happened, to reduce the prices back to the pre-COVID age.
The cornerstone is going to have more stability in supply location changes, which means that the carriers will not have to keep changing the routes of their vessels, and eventually, moving vessels will be put to work and more containers will be processed. Also, with more control over the virus effect, the labor problem will be managed.
As for the import-export imbalance, last year there was an announcement from China that they are taking serious steps to increase the supply of the containers. The largest manufacturers are in China as well, and since September, production on average of 300,000 TEUs per month. However, the effect of this will not be felt by exporters until the number of operating vessels increases. The imbalance happening in North America is slighting improving now but it should be some time before we feel a good effect taking place.
What will happen after this bottleneck is over?
Some carriers are taking measures to try and resolve the imbalance challenge, such as reducing the free time and increasing demurrage fees. Some governments are also taking strong steps to solve this matter. But we can’t expect things to get back to normal overnight. The current situation is a result of over 14 months of delays and bottlenecks. Therefore, resolving this matter will take longer than the end of the 2021 year for shippers to see hope for a normal shipping environment again.
This has also given the chance for some freight forwarders to step in and exhibit creativity and innovation in the digital freight forwarding initiative. It allowed shippers to reduce human interferences in operations and build a smoother process that goes side by side with the developments happening on the carrier’s side (for both air freight and sea freight). This method is depending on a fully automated process.
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