A Domino Line in Global Trade: Container Shortage

The pandemic disrupted international trade increased the cost of shipping goods and added a new challenge to the global economic recovery: the container shortage. The crisis in the container line of transportation is about to turn into chaos in world trade.

The global transportation system is currently experiencing a unique and unexpected crisis. The extraordinary cascade of events caused by the pandemic continues with a serious container shortage crisis. It is inevitable to classify this situation globally as the lack of containers has a cascading effect on all supply chains and fundamentally disrupts international trade.

Container transportation, which has a share of 80 percent in global sea transport, has a capacity of 30 million TEUs per year. This capacity, together with the increasing demand, has increased by 100-300 percent on lines compared to last year and even reached 500 percent on some lines. According to the Shanghai Containerized Freight Index, the increase in the Mediterranean line, in which Turkey is also located, is 194 percent and it is around 450 percent in Asian trading ports.

Exporters and brokerage firms, on the other hand, declare that shipping costs increased from approximately $ 1.500 to $ 6-9.000 per container in February this year. The cost of shipping a 40-foot (12-meter) container from Asia to Europe has tripled from $ 2.200 to nearly $ 8.000 since November 2020. The cost of shipping goods from America to Asia has doubled. The Freightos Baltic Index, which measures container freight rates in 12 important sea lanes of global trade, shows that the cost, which was at the level of $ 344 per container on 13 March 2020, when the epidemic was declared a pandemic, exceeded $ 4.000 after last year.

Producers have started to charge extra fees in parallel with the increasing costs. China, which is the superpower of production in the world, also dominates the world’s container production. Chinese container manufacturers charge $ 2.000 today for the container, which they put on the market for $ 1.600 last year.

The container crisis has arisen for many reasons: China-USA trade wars, goods awaiting at the Asian ports, the decrease in the number of available containers, the decreasing number of workers in ports due to the pandemic, the drop in the number of ships operating, changes in consumer buying sentiment, the slowdown in customs operations due to border closures, the suspension of some operations, and the delays in the shipments…

The US-China Trade War is Reflected on Containers

Although China was the first country to be caught by the pandemic, it quickly resumed exports and production with an early exit from the process. Other countries have, meanwhile, continued to face restrictions and labor cuts. Currently, there is an imbalance of 40 percent in North America. This means that only four out of 10 incoming containers were sent back and six remained at the arrival ports. Considering that the trade between China and America is 900.000 TEU per month, the magnitude of the imbalance is clearer. On the other hand, according to consulting company Descartes Datamyne, shipments are at an all-time high. The sales volume of the first quarter during a normal year increased by 23.3 percent over the same period last year.

China-USA trade, which has increased since last November, is shown as one of the important factors behind the freight crisis. America’s increasing intense import from China, especially medical products, has been causing problems, especially in 40-HC containers for the last five months. Parallel to this increasing trade, the freight rates between the two countries increased more than other regions and almost doubled.

In the face of this situation, shipowners prefer to transport most of these containers from China to America. However, the return of 40 HC containers to China is much less than that of export, which upset the balance of inbound and outbound and created a domino effect in world trade. After the increase in demand for 40 DC in the absence of 40 HC, there is also a shortage of this container type. Due to space problems, shipments have to wait for weeks.

The trade war between the USA and China stands out as the most powerful phenomenon voiced by many actors and experts who have expressed their views on the crisis in the sector. While China is pulling the empty containers to their ports and keeping them ready, the USA does not allow the exit of the container without purchasing the goods and does not allow the ships to dock at the port. Recently, Israel and Saudi Arabia have started to restrict the exit of empty containers. These countries do not allow more than 50 containers to go empty. Turkey, whose container pool is depleted, is able to obtain empty containers from Greece and Egypt.

The decrease in the number of workers in the ports of many countries due to the pandemic has also created a multiplier effect in the crisis. In particular, the inability of crane operators, who use container movements, to work part-time or for a certain period of time, caused delays in the evacuation of the ships. While there was a 1-2 day delay in the shipment of the containers to the USA to the inner regions in the pre-pandemic period, this period has reached a week nowadays. This disrupted the equipment supply and demand balance.

The charter market has also been experiencing extreme congestion for the last 3-4 months. Due to the recent demand for additional tonnage, there were no available ships and the charter prices increased unexpectedly. The fact that the tenants make annual leases at these rising prices in a short time indicates that there will be dynamism in world trade in 2021 and the freight prices will be higher for a while.

China is Trying to Increase the Container Supply

One reason for the bottleneck in the trade and container crisis is the low rates in container production. The decrease in production in 2019 decreased even more in the first quarter of 2020, and the supply in the world cannot meet the increasing demand currently.

As the world’s largest producer, China dominates a large part of the world’s container production and therefore, the steps to be taken by China at this point are important for the world, and it has started to make some initiatives in this regard.

With reports of growing congestion and container shortages at major ports in China, Chinese officials have called for cooperation in recent months to get more containers and lower shipping rates. Chinese officials called on ports and shipping associations to work with international carriers to address container shortages at a recent conference hosted by the Ministry of Transport and told that the China Ports and Harbors Association (CPHA) and the China Shipowners’ Association (CSA) must reduce container shortages critical to Foreign trade. The ministry acknowledged that the revival of business, which began last year, contributed to the container shortage and that the slow return of containers from North America to Asia was one reason for their current deficit in China.

Last year, China announced that it was taking steps to increase the supply of containers. Chinese state media noted that the China Container Industry Association (CCIA) urges sea container manufacturers to increase their production dramatically. The association said China has been producing 300.000 TEU a month since September to alleviate the shortage. Chinese container manufacturers have expanded their regular working hours to eleven hours a day.

The Container Crisis Shrines Export

Containers are the building blocks of global trade, and the crisis here naturally affected various business areas. While the effect of the crisis on the transportation of high-value goods such as mechanical engineering products, electronics and computer equipment was minimal, the increase in shipping costs, especially for other goods and Asia’s Textile industry, created serious problems in the sector. Exporters argue that the sharp increase in freight rates has led to the closure of many textile mills that operate on small margins. Delays and container shortages are driving up prices. In Asia, delivery delays reach several weeks, forcing many companies to negotiate price increases with buyers. This situation created chaos not only for the textile industry but also for many industries and small-scale exporters. Turkey is experiencing a similar situation for exporters. Ongoing problems cause products ready for shipment to pile up in warehouses. Exporters are facing order cancellations due to delivery delays. Manufacturing and raw material imports related to manufacturing have also slowed down in many sectors.

Increasing freight rates due to the container crisis is another problem for manufacturers and exporters. In addition to the shortage of 40 HC containers on the Far East-North America and Far East-Europe lines, the problem of space on the ships led transporting companies to make a choice among the customers and receive the freight of those giving the most freight. Besides, it is stated that companies will close the first quarter of 2021 with great losses with the increase in raw material prices and prolonged delivery times.

Having had a hard time in the face of the shortage of ships and containers, Turkish exporters do not interpret the course very positively and states that the process may take another year. Exporters, who believe that there should be an intervention before the situation turns into export and current account deficit, highlight that the exporters, a partnership that is similar to the cooperation of Turkish Exporters Assembly and Turkish Airlines should be realized in maritime affairs, as well.

The Crisis May Continue Until the Second Half of The Year

The empty container crisis, which upset all balances in the global supply chain, has exacerbated the trade wars between countries with all the accompanying effects. It is still unclear how the harsh effects of the container crisis, which created a deep black market, on exports and imports will distribute the cards in global competitiveness and trade.

The answer to the question of what to expect in the future is not unique and clear. Some reports from China indicate that activities in Chinese ports have improved in recent weeks while other countries in the global shipping industry remain pessimistic about the coming months’ outlook. Many people believe that there will be no relief until summer. The industry, on the other hand, estimates that the crisis will continue until the second half of the year.

Numerous measures are currently being taken to break the deadlock, such as carriers’ attempts to reduce free time and detention periods, more efficient unloading systems, etc. However, it is not clear how the global container shortage crisis could normalize in the coming months. Unfortunately, contract freight rates are also forecast to remain high throughout the year. It is already clear that this year will be quite challenging for both trade and transport companies, and therefore for the world’s economy.

Ahmet Güçlü: “We Anticipate That the Crisis will be Solved in the Second Half of the Year”

Globelink Ünimar Seafreight Manager Ahmet Güçlü: “Due to the COVID-19 pandemic that started in the early months of 2020 and affected the whole world, it got very difficult to manage international logistics operations in a planned and desired way last year. This situation naturally and primarily reflected on container transportation. Container supply is currently in a bottleneck as the demand for containers worldwide is far above the current supply.

The basis of this problem lies in the rapid recovery of production in East Asia, especially in China, after the strict Coronavirus measures taken and the increase in demand. Unfortunately, this process, which we have been going through in terms of container supply for about nine months, has brought along freight problems. Freight prices have increased four to five times today compared to the first period of the pandemic. Besides, the loss of workforce in ports due to the measures taken under the COVID-19 breakout significantly affected the period between the unloading of a container ship and its return. The losses experienced a few days before the pandemic has lasted a week and 10 days today. Naturally, these problems continue to pressure both the exporter and the producer.

Although there are negative scenarios that the container and freight crisis will continue throughout the year, the general opinion in the sector is that this problem will start to improve after the second half of the year. The biggest factor that makes up this general expectation is the implementation of vaccination. As the launch of the vaccine accelerates, we expect life and consumer purchases to return to normal. Improvements in expenditure policies will normalize supply and demand accordingly. As a result, we anticipate that we will see a more positive picture in the second half of the year.”