The Covid-19 crisis has strongly impacted the World’s international transport market. After the international ocean freight grows dramatically in 2020 (start from May), the international transport market has seen shortage on containers (free). The containers shortage (free containers), which is an important tool for international transport, especially ocean freight has greatly impacted the international market, push the containers’ price higher while at the same time create perfect reason for the shipping lines to grow their ocean freight prices. In this article, the shortage of containers, its impact on the international transport market alongside with shipping lines decision to increase price, the reasons and impacts of it on enterprises will be explained in the most compact way.
 

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The first reason we would get into details here is the effect of Covid-19 to the market. The widespread of Covid-19 has dragged down the national GDP of the World’s top economies. While the international passenger transport industry was forged to close, many related industries such as tourism and food services has also taken hit. At the same time, high infection rate and the ill-attitude towards anti-virus methods in the first period of the crisis in the Western World has strongly effected the manufacturing sector, directly affected human resources, impacting the production ability of major manufacturing economies. As the services sector and the financial world get hit, many logistics services enterprise get into hardship. The dramatically drop of the World’s economy is the first reason and has the strongest impact on the international transport market.

The second reason and maybe the most important reason behind the shortage of containers that is the reaction from the shipping lines and top containers manufacturers. There’s an important point, although the transport fees started to increase from May, 2020, top shipping lines has not increase their activities until September, 2020. This is not coincidence. In reality, policies from the shipping lines and containers manufacturer to combat the Covid crisis has directly impact the market. Facing the economic decline in 2019, the shipping lines has cut down their activities. It’s a must for consideration that the world’s transportation market has got tougher, with structural changes, merging and cut down in man power from World’s major corporations. At the same time, after the boom in demands for free containers in 2018 due to the boom in worldwide economics, especially in Asia – Pacific region, demand for new containers in 2019 has dropped down dramatically. The effect of the Trade War, the transition of the World’s supply chain and the decision of shipping lines to cut down their fleet, the continuation of structural changes in World’s top shipping lines are main reasons behind the decline in demand for free containers. In reality, this is the biggest decline in demand for containers in decades. To combat this situation, top containers manufacturers has cut down their production to keep prices. The decline in containers production alongside with the drop in shipping lines’ demands for new containers in their compacting process in 2019 could be considered main reasons behind the containers’ shortage. 

When the demand for international transport increase again, the demands for new containers begin to rise. At this point, after the cutting down production period, which happens at the same time with the restructuring of top shipping lines, top containers manufacturers begin to increase their production again. The shortage of containers in months has forced the shipping lines to buy new containers in higher price. At this moment, the increase in activity of the shipping lines increase their demand for new containers. The action of top containers manufacturers to cut down their production in order to hold prices has given shipping lines reason to increase their fees. When the demand for transportation increase again, the shipping lines increase their fees, the decision to hold prices from the manufacturers has created a win – win situation for both. The shortage of new produced containers has generally created the shortage of containers for the market. Now, when the shipping lines can have bigger revenue, consider that they have cut down their cost, the World’s top containers manufacturer can now increase their price due to the increase in demands. Considering the above factors, we can see that the container’s shortage is a direct result of container manufacturers cutting down their production. This decision not only has allowed top containers manufacturer to hold their price, but also give them the decision power over containers’ prices, earning huge profits from the regrowth of international transport.
The last reason and very important to understand the current containers shortage is the stocking of containers in large volume for speculation. According to report from Container xChange and analysis from Phaata logistics, a large number of free containers in depots in North America and China has got their average day and median day higher than usual. According to analysis from Phaata logistics, the average day for free containers inside depot (domestic port) in North America and China is from 61 days to 66 days, respectively, despite the current containers shortage in the World market. It’s worth to note that the average day for containers inside depot (Worldwide) is only 45 days.

Consider that the average day and median day for containers inside the depot in North America and China is higher than the World’s average, chance for the stocking up of containers for commercial purpose is possible. While the world’s market is growing again and the international transport market has seen increase recently, the stocking up of containers inside the depot of North America and China could be business tactics, in order to increase containers price. At the same time, this could be a solution from the shipping lines in order to combat the current containers shortage.
In the period from late 2020 to mid-2021, it will be hard for the international transport market to reach balance. According to latest information from the shipping lines (such as Cosco or Mearsk), the ocean freight cost for a container going on North America – Asia route will increase to 10.000 USD/container. This is the highest price that the market has ever seen in the last few years. It worth to take note that the ocean freight price has decreased in the pre-2018 period under strong impact from the frieze competition between shipping lines. After the cutting down activities in the period of May, 2020 to December, 2020, shipping lines have increased their activities again with rising ocean freight prices. The freight price is predicted to increase more at least until mid-2021. The action of containers manufacturers to cut down production in late 2019 and only increase again from May/2020 has benefit them greatly. Facing increase demands for new containers, the manufacturers will continue to increase their prices. Enterprises working in the logistics services and international transport sector will have to set their policies strong for the coming months (at least until the market reaches balance).

The containers shortage has strongly impact the international transport market. While the cutting down on production of the containers manufacturer has put strong impact on the market, the increase in freight cost has affects the whole market. In this article, the main reasons for the containers shortage and its effects has been analyze. The international transport market, under the effects of the increase in transportation fees, and most importantly the containers shortage will continue to see many variations, especially when the World’s economy is showing sign of regrowth.

KH.