Thanks to the pandemic, huge numbers of empty shipping containers ended up in Australia, yet even with the apparent glut the cost of a shipping container has sky rocketed. Why’s this the case?
Trade imbalance
You’ve probably noticed the e-commerce boom here, with Australia Post recently reporting an industry-wide growth of 57% across the country in 2020. That came about as Australian consumers moved from bricks and mortar shopping to online platforms in the pandemic.
This is reflected around the world with a massive uptick in consumer demand in North America, Europe and Australasia.
First to be hit by the global pandemic, China got its manufacturing industry rolling and consequently was able to meet countries’ consumer demand for goods in 2020.
Shipping lines were hauling vast quantities of full containers to Australia and that ended up leaving us with too many empty shipping containers stacked in places like Brisbane, Adelaide and Sydney.
Looking at the US as an example of the imbalance of trade, it is estimated that of every 100 containers going there, just 40 would return to China. Now consider that on average 900,000 containers head from China to the US and this translates into big numbers of containers in the wrong place very quickly!
There is normally a trade imbalance – Western countries, like Australia, are consuming countries while Eastern countries like China and Vietnam are manufacturing countries.
Air freight capacity fell too…
You may have also noticed that not many people were flying around the world for a while! The passenger airline industry took a massive hit and they stopped flying on many international routes. Did you know that much of the hold capacity of these aircraft is for carrying high value air freight, like iPhones and other consumer electronics?
These high value goods started to go by shipping container instead. That added to the demand for sea freight just as the rest of the world started shaking itself off from the first wave of the pandemic.
Despite the glut, prices are still high here!
You’d have thought that the supply and demand trade imbalance would have only affected imports from China, and with the glut here we would be in a buyer’s market. Sadly that’s not the case!
The problem was, the empties weren’t going back. Plus, in part with our agricultural and manufacturing industries in crisis due to the state lockdowns, neither were we sending back full containers to China. To add to this, thanks to the high demand for empties in China, shipping companies have seen that it’s more lucrative to get empties back to China, rather than allow them to be filled up in Australia with what we export.
In February, 9News reported, “Chinese demand for containers is so great that exporters are paying huge premiums for empty boxes. The money they are prepared to pay has risen so high that it is now more profitable for shipping carriers to send the boxes back to China with no cargo, rather than waiting to have them refilled with goods destined for Asia.”
The same news report suggested that three empty containers are headed to Asia for every one arriving. Big ships are full of empties headed for Asia, and the prices being charged for space on these are impacting the cost of getting a full container from here to there.
Profits all round
The shipping companies and container manufacturing companies will be pouring a few glasses of champagne at their next earnings calls. This is generally because the costs of moving containers and making them haven’t changed – just the available space on ships has disappeared and Chinese shipping container manufacturers aren’t adding shifts to make new containers. Essentially those on the supply side are getting paid more money to do the same thing as they were.
Admittedly during the pits of the pandemic when global trade slowed, container lines cancelled certain sailings. This reduced freight movements worldwide – Maersk say that a cancelled ship can save 60% in losses on a route. They have brought those ships back online and are now engaged in carrying full shiploads of full containers from China to consumer markets and lots of empties back, continuing with the imbalance of trade.
Here are some numbers – in December 2019 it would cost USD $1,548 to get a container from Shanghai to Los Angeles; in December 2020, it cost USD $4,081. Most of that ends up in someone’s pockets as profit!
Chinese container factories up their fees too
You’d have thought that with demand so high in China, and most containers being made in China, they’d just make more, right? This isn’t the case. At Gateway Containers we have seen evidence that container factories aren’t going from one shift every 24 hours to two as they have in the past. Instead they’re taking orders ahead and in some cases have full order books for at least a year ahead. You’ll be glad to know that making shipping containers requires a lot of skilled labour to make them so well. The skilled labour shortage backs up to the container makers who can’t find the staff and can’t fulfil their orders by adding shifts.
They are charging more too – the research we’ve seen suggests that the cost of a new 20ft container in January 2020 was from US $1,656, whereas these companies are now charging around USD$3600 per unit now. The businesses are enjoying the high times too – China International Maritime Containers (CIMC), the largest shipping container makers in the world, has seen profits leap from around US $20 million in 2019 to $305 million in 2020. Champagne aplenty!
The good news – things will settle
As the world emerges from the financial mess caused by the pandemic, things should improve for shipping container prices in the next year or so. There will be short term pain as containers go back onto their old routes and the balance of trade is restored. We won’t see things as cheap as they were but the spike in shipping container prices should ease off by the end of 2021.
You can trust Gateway Containers to offer good rates
From our perspective it’d never make sense to take the Mickey out of our customers. At the moment we are charging more for shipping containers but that’s because we’re paying more. There are seasonal increases and drops in prices and this is reflected in how much we charge at different times of the year.
Contact us today to discuss your needs and we’ll do our level best to help out!
