Chennai, 7 July 2021:
At the start of the coronavirus disease of 2019 (COVID-19) pandemic, expectations were that seaborne trade, including containerized trade, would experience a strong downturn. However, changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers.
As at the third quarter of 2020, lessening of lockdown measures and varying speeds of recovery worldwide, as well as stimulus packages supporting consumer demand, inventory-building and frontloading in anticipation of new waves of the pandemic, contributed to leading to a further increase in containerized trade flows.
The increase in demand was stronger than expected and not met with a sufficient supply of shipping capacity. Empty containers to move exports from China to destinations abroad became unavailable. The reasons for this shortage were manifold.
At the outset, the disruptions resulting from the pandemic, trade imbalances and changing trade patterns led to shifts in the geography of container trade. Empty boxes were left in places where they were not needed, and repositioning had not been planned for.
Moreover, as carriers introduced blank sailings, that is, skipped port calls, a mismatch between supply and demand for empty containers was exacerbated, as empty containers were left behind and failed to be repositioned.
The container crisis is also a reflection of a slowdown in and delays across the maritime supply chain due to strains caused by the pandemic, such as port labour shortages, port congestions (also due to blank sailings) and capacity constraints in truck and other inland transport systems due, for example, to delays in undergoing necessary testing or delays by factories in returning containers.
These factors meant that container dwell times increased and empty containers could not return to the system in which they were most needed (UNCTAD, 2020a).
Finally, the situation was further exacerbated by the obstruction of the Suez Canal by a grounded container ship. As ships, and the containers on them, took longer to reach their destinations, the shortage of available empty boxes increased, including in Shanghai, China.
As a result, freight rates increased not only on the routes passing through the Suez Canal but also on nearly all other routes. The trends noted above culminated in freight rates reaching historical highs by end-2020 and early in 2021.
What can explain these differences? Longer routes, including China–South America and China–West Africa, require more ships for a weekly service, which implies that a large number of containers are also stuck on these ships. Therefore, when empty containers are scarce, an importer in Brazil or Nigeria must pay not only for the transport of the full import container but also for the inventory holding cost of the empty container.
Then there is the lack of return cargo (South America and West Africa are both net importers), which makes it costly for carriers to return empty boxes to China on long routes.
Finally, freight rates on thinner routes, that is, with only two or three weekly services, tend to be more volatile, since taking out or adding one vessel call, or one service, makes a significant impact on the overall limited number of prevailing services, compared with on routes with a higher density and more frequent services.
Carriers, ports and shippers were all taken by surprise by the pandemic, and the subsequent shortage of empty containers observed since late-2020 is unprecedented. No contingency plans were in place to pre-empt the lack of availability or to mitigate its negative impacts.
Given current trends, several months will likely pass before this disruption can be absorbed across the maritime supply chain and before the system resumes smoother operations.
In the meantime, there are three key considerations for policymakers, to help reduce the likelihood that similar situations will occur in the future.
The pandemic has highlighted the importance of resilient supply chains. Customs officials, port workers and transport operators have recognized the need to reduce physical contact, at the same time keeping ships moving, ports open and cross-border trade flowing.