The humble shipping container deserves its place in the list of inventions that changed the modern world. Its outsize role in enabling global trade is underlined by the chaos caused by a current shortage. Pandemic-induced disruption has affected the speed and efficiency of seaborne traffic. The cost of shipping goods from China to Europe has more than quadrupled in the past eight weeks.
Multiple factors are to blame. Empty containers were left stranded in Europe and the US after shipping lines cancelled sailings in the pandemic’s early months. Covid-19 has also curbed ports’ capacity, pushing up container turnround times by two-thirds to 100 days. Changing spending patterns from locked-down consumers have led to a surge in demand for goods. That would have been unmanageable even under normal circumstances, say experts.
The consequences are serious. Higher shipping costs will contribute to inflationary pressures. Manufacturers with thin margins have no choice but to pass the extra costs on to consumers. Delays and shortages will lead to lost sales, putting pressure on cash flow.
But the disruption will be temporary. To judge by the time it took a similar bottleneck — arising from stranded containers — to clear in 2010, conditions should improve in February, says Lars Jensen at consultancy SeaIntelligence. The closure of factories over the lunar new year holiday will help carriers tackle their backlog. Once economies open up, there will be a switch from spending on goods to services.
That said, high rates may get baked into annual contracts. Investors are still bullish about the shipping companies’ prospects. Shares of the world’s largest container line Maersk have tripled since their March 2019 low.
That reflects a newfound restraint in an industry once notorious for its habitual destruction of shareholder value. It has held back from ordering large numbers of new ships, in part because of uncertainty over emissions-reduction technology. The order book was just 10 per cent of the fleet by end year, says Clarkson Research.
Competition in the industry has been dulled by an expanded system of alliances. That is a sore point for some customers, whose anger has been further fuelled by surcharges and cancelled bookings. The current disruption adds to the arguments for lessening dependence on lengthy supply chains. After the pandemic has subsided, shipping container volumes are unlikely to keep pace with economic growth.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.