Following a particularly difficult period, there are indications that the severe container shortage that hit the shipping industry is beginning to wane. This comes on the back of several optimistic reports and opinion pieces about the state of the industry. Container availability is a key component of ocean freight rates.
These rates hit records in recent months. Finally, they may be beginning to subside. One particular index indicates positive trends. However, experts recommend caution because there are many factors at play that could influence the availability of containers.
Container Problems
This has been an ongoing issue since the beginning of the COVID19 pandemic. The outbreak led to significant labor shortages which meant that there were insufficient staff levels to deal with the volume. At the same time, demand was uncertain as the consumer patterns were changing in response to the lockdowns and social distancing involved.
Later on, the trade volumes started picking up on the back of increased ordering online and the purchase of personal protective equipment. The holiday season increased demand for shipping services while the Chinese New Year meant that a new wave of labor shortages was being experienced in Asia.
The market rebounded much faster and more significantly than had been anticipated. That means that containers were once again in severely short supply. Those consumers that were importing goods from far-flung locations faced significant delays and there was a new premium service that catered for those that could not wait but were willing to pay significantly higher costs for quick service.
As the problem deepened, factories were struggling to cope with equipment requirements. The price of manufacturing increased and yet the demand for new products and shipping space was increasing. US exporters were severely hampered and they complained to the Federal Maritime Commission.
One of the key complaints was that carriers were declining hinterland pickups. This was done to quickly get to Asia and deal with more profitable cargo. The beginning of 2021 was greeted with a wave of optimism. It seems that that optimism was justified. However, a lot of monitoring will be necessary to prevent the crisis from returning.
The Container Index
Since the end of 2019, the shipping industry has been referencing the Container Availability Index. This is a predictor of available equipment. The estimates are based on existing container moves and expectations for trends in the industry.
According to the index, anything above 0.5 shows a surplus of equipment, while anything below indicates a shortage. Currently, the index is predicting a surplus. There are positive trends in Shanghai right from January for two types of containers that are popular. First is the 20-foot dry container with an index ranking of 0.34. Second is the 40-foot dry container with an index ranking of 0.37.
Recently the index has been even higher for these two vessel types. Because Shanghai is taken to be a bellwether market, this is great news for the shipping industry as a whole. The only and significant caveat that availability in one port will be replicated in all other parts. Moreover, the inflows and outflows for each port may complicate and diversity the exact availability.
Certainly, some experts are cautious at the moment. One possibility is that there is a relatively softer market following the Chinese New Year celebration. This tends to free up container space for a limited time before trade picks up again.
Wrapping Up
Experts predict demand to remain fairly strong throughout March and April 2021. The situation is only likely to subside after a few months of adjustments. The index masks a very complex and as yet unpredictable market. Improvements are therefore likely to trickle in lane by lane and week by week rather than an entire industry improvement. Industry players will need to be alert for any changes in the market.
