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HomeInsightsThe paradox of the corona pandemic in the shipping industry

The paradox of the corona pandemic in the shipping industry

Not enough containers around the world with Freight rates continuing to surge

Freight rates for container ships have continued to surge over the past three months. Container shipowners around the world suffer from a severe shortage of containers due to growing shipping volumes and increasing freight surcharges. Especially, container shortages at Asia ports are so severe that carriers with premium trans-Pacific services are sometimes unable to guarantee. China has the largest container ports, such as Shanghai, Shenzhen, and Ningbo-Zhoushan, which are unable to process containers at the usual rate, with the prolonged effect of the outbreak of the coronavirus pandemic leading to the sluggish recovery of China’s logistics sector. As containers are a finite resource with Asia to Europe rates skyrocketing with peak season surcharges, trans-Pacific freight rates are almost 200% higher than 2019.

ⓒ Pexels North port

Container shortages posing a growing problem for U.S. agricultural producers

The U.S. exporters are struggling to find containers they need to send their products to overseas buyers as container shipping companies are rushing boxes to China, leaving fewer boxes available for U.S. exporters to stuff with agricultural products. U.S exports rely heavily on bulky agricultural goods, together with food and beverages, which has a lower market value compared to U.S. imports from China such as electronics, apparel, toys, and other manufactured commodities. This has resulted in a sharp imbalance in moving goods across the Pacific. The increased demand in the U.S. for imports has prompted container freight rates from China to the U.S west coast ports beyond $4,000 per container, which was several weeks ago $518 on average. In this regard, carriers hustle boxes back to Asia. Ships from China to the U.S. are full of electronics, equipment, and furniture, and there is a high demand for empty containers in China while agricultural producers in America now struggle to find boxes.

ⓒ Pexels Seoul

Soaring freight rates wreak havoc on Korean exporters

The trade imbalance is impacting ports and cargo owners around the world. Korean exporters are complaining that empty boxes were sent to China on the back of the stronger freight rates there. HMM, Korea’s largest container carrier, projected that it will spend $205 million, or 14% of its equity capital, to increase its purchase of containers. The absence of Korean shipping container manufacturers has also exacerbated its supply shortage. Korean companies, such as Hyundai Mobis Co., led the global container market in the 90s. But they have given its place to Chinese competitors like China International Marine Containers Co., Singamas, and CXIC, which have cheap labor costs since the beginning of the 2000s. Chinese container manufacturers comprise 90% of the global market. Korea’s last container manufacturers, Hyundai Mobis, and Jindo, in 2001, finally withdrew its business out of the market. Although shipping volumes are increasing, the higher freight charges and box shortages will continue to give burdens to Korean exporters’ price competitiveness.

ⓒ Pexels India

Container shortage hinders India from recovering from the pandemic

India is grappling with the aftermath of its coronavirus lockdown that did little to curb the spread of the epidemic but exacerbate economic activity. According to India’s Ministry of Commerce and Industry, the country’s exports rose for the first time in six months in September, while imports dropped 19.6 percent compared with the same period last year. Roaring tensions with China deteriorated after 20 Indian soldiers were killed in a border clash led to more restrictions targeting Chinese goods. The bans on imports from China are contributing to the country’s slump. One of India’s largest grain exporters reported that prices of 20-foot containers to west Africa had surged more than 100 percent. While India is struggling to fight a pandemic and shortage of containers, China is enjoying the post=pandemic time and a surplus of containers. The containers had nowhere to go but to end up in China because the rest of the world was closing down while it started opening up. 

ⓒ Pexels Chinese labors

What other factors cause the shortage?

This global issue of shortage is concerned with several factors. Congestion at transshipment ports and the railroad system in the U.S. is leading to delays. Furthermore, many shipping companies had cut down their capacity by 25 percent as a consequence of decreased demand due to the pandemic. As vessels are quarantined, additional checks on Chinese shipments and an overall unfavorable outlook for China worsened the situation as well. The market for a commodity like shipping containers is a zero-sum game, where winners and losers are decided by who does and doesn’t have their hands on the available supply. The beneficiaries of such high demand for containers are Chinese manufacturers that dominate the global market for newly-built containers, whose price has increased to about $2,500 each from about $1,600 a year ago.

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