Inside Logistics

Vessel and container shortage slowing global recovery, shippers say

Global Shippers Forum says shippers are struggling to book container slots


June 4, 2021
by

The shortage of vessels and equipment in global container shipping markets is hindering the pace of economic recovery in countries emerging from pandemic restrictions.

This is the main finding of the newly released Container Shipping Market Quarterly Review issued by the Global Shippers Forum and MDS Transmodal.

The Review reports on eight performance indicators of the global container shipping market using publicly available data for the first quarter of 2021. These data are unaffected by the closure of the Suez Canal for six days in March, but the effects of this on trade and shipping in the second quarter of this year will be captured in the next review that will be published in

“Shippers around the world are in a state of shock at the collapse of service performance and the remorseless rise in shipping rates. The latest data confirms the anecdotal experiences of shippers struggling to book container slots on a fleet that has hardly grown and needing to absorb the relentless rise in rates that is eroding their own profit margins,” said James Hookham, secretary general of Global Shippers Forum.

“What the data don’t show is the cargo left behind on the dock. The fact that industrial output continued to rise over the first three months of the year, but the number of containers carried actually fell slightly shows this is an industry that has ‘maxed out’. This is already causing shortages of products and materials essential to the recovery of economies after the traumas of the Coronavirus pandemic.”

Hookham went on to say that the shipping lines are increasing rates, and blaming shippers for “bidding up prices to secure slots and equipment”.

“Let’s be clear the reason shipping rates are going up is because shipping lines keep increasing them. If shippers were responsible, then the market would have found its own level,” he asserted.

“World governments urgently need to realise that the prospects of a rapid economic recovery are dependent on a resumption of international trade at predictable costs and levels of service. Right now, the double whammy of inflation pressures and chronic shortages of essential products could disrupt the hoped-for resumption of business as normal.”

Supply and demand conditions in Q1 2021 were similar to Q4 2020 in that while demand fell by one percent and scheduled deployment of global shipping capacity grew by two percent, a continuing decline in service reliability and port calls likely cancelled out any marginal benefit to that balance.

Mean freight rates have continued to accelerate; gross freight revenues per TEU have grown by around 40 percent over six months while spot rates have grown even faster.

“The lines have argued such rates are a consequence of demand exceeding supply. Given supply is effectively fixed, rising freight rates must imply frustrated demand. Spot rates on the Far East to Europe trade lane are now approximately 10 percent of the mean value of the goods in a typical loaded container, as compared with around three percent less than a year ago. It is reasonable to assume there will be wider impacts on both economies and there is a risk of stoking inflation,” said Mike Garratt, chairman of MDS Transmodal,.

Over the period Q4 2010 (after the effects of the financial crisis had been played out) to Q4 2017 the mean compound growth rate on global container demand was 3.9 percent p.a. while the subtotal of global deployed capacity grew by 4.1 percent a year. It was reasonable to assume the lines would continue to invest in capacity, ordering ships that would be available by 2020 Q4, the report said.

However, while 2020 Q4 was the busiest quarter ever experienced, the growth rate from 2017 Q4 had actually fallen to 3.4 percent while total deployed capacity grew at only 2.3 percent a year.

“The impact of the pandemic is not to blame for creating exceptional levels of demand, albeit that the dip in demand in early 2020 may have made it difficult to anticipate,”  Garratt concluded.