Containertalk - news from the Far East

It is no secret that the majority of the world's sea container production takes place in China. Due to the pandemic, the past three years have been extremely challenging - especially for international trade. The city of Shanghai, in particular, which is a major hub at the international trade level, has been in the headlines on a regular basis. Most recently due to a renewed, nationwide lockdown in spring 2022, the after-effects of which are still being felt.

Read on to find out how we assess the current situation in Shanghai and what can be predicted from our point of view - with a glimpse into the future...

The current situation in Shanghai

"Another Lockdown in Shanghai!" - this headline once again appeared in the major trade journals in the spring of 2022. International trade was at a standstill for weeks, only little goods traffic was moving out of or into the metropolis of millions at that time.

What were the consequences of this renewed lockdown?

In recent years, there were not enough containers on the market due to the disrupted supply chains. In direct proportion, a huge imbalance could be seen between the containers available and the global demand for goods. In addition, it could be seen that the pandemic had an impact on people's consumption behavior and that the demand for goods had once again increased significantly. There was a clear tendency for many companies to increase their stockpiling to hedge against risks posed by disrupted supply chains. The combination of demand, the few containers available and the fact that the majority of goods imported into Europe come from China has led shipping companies to re-position empty containers. This means that several thousand empty containers from all over the world have been brought to China/Shanghai to restore balance and provide goods to the world. The shortage of containers led to a surge in demand for shipping containers. However, as container production in China was severely affected during the various lockdowns, there was a noticeable shortage of container supply.

The mix of the now again uninterrupted container production, temporarily decreased demand for goods and the repositioning of containers ensures that there is currently a container surplus in Shanghai. This means that a large number of containers are available in Shanghai at the same time. As a result, the shipping companies are currently only able to move the many containers slowly. It is no surprise that the cities in China, Shanghai in particular, are extremely busy and container transports take up a lot of time. This in turn leads to immense ship delays, as currently no ship can leave the port of Shanghai on their scheduled departure date. Of course, these ship delays also affect ship arrivals worldwide.

The Silk Road transportation trend

Another important aspect that has an impact on the current situation is the clear trend of transportation shift that has been evident for several years. Due to the expansion of the Silk Road, there is now a good, popular and fast alternative to the sea route. For the 40'High Cube containers, which are usually used as a means of transportation by rail (40'Standard, 40'High Cube Side Door or 40'High Cube Double Door containers are also an alternative), rail operators in 2021 have paid high pick-up rates to get traders to arrange their equipment by rail rather than by ship. When this was recognized in the market, both container dealers and rail operators had a maximum amount of 40'High Cube containers produced to make as much profit as possible from the situation. There is now a significant surplus of 40'High Cube containers, which has eventually led to both the selling price of 40'High Cube containers and pick-up rates dropping rapidly. The war events in Ukraine and Russia are also playing their part. For insurance reasons, many shippers are currently avoiding the Silk Road and are instead using the sea route exclusively. This circumstance is leading to lower cargo volumes on the new Silk Road. A rate cut by the rail operators is expected to increase the volume on the Silk Road again.

When the rail operators lower their rates, the shipping companies have to follow suit to remain competitive. Due to the enormous surplus of containers in China/Shanghai and the global war events, transport rates have been dropping rapidly for several months. Accordingly, both aspects have an impact on the overall rate structure and selling prices.

When the rail operators lower their rates, the shipping companies have to follow suit to remain competitive. Due to the enormous surplus of containers in China/Shanghai and the global war events, transport rates have been dropping rapidly for several months. Accordingly, both aspects have an impact on the overall rate structure and selling prices.

What to expect in the future

Looking into the future, we forecast that the congestion in China will be with us for some time. Due to the fact that few containers are currently leaving the Far East, the first signs that container prices will rise again are being seen in Europe, as there are no longer enough containers available in the region. The special containers, such as 20'Side Door or 20'High Cube Side Door containers, are especially in demand at the moment.

The development of the global political situation will also continue to have a strong influence on international trade and thus also on the container industry. Its influence is reflected in the consumption behavior of the population in industrialized countries. Currently, exports from China are declining noticeably, reducing both cargo volumes and freight rates. Unfortunately, no one knows how long the Russia-Ukraine conflict may last. The fact is that the consumer behavior of the population - especially due to the slowdown in economic performance, combined with the rise in inflation - has been severely dampened. We can therefore expect freight rates to continue to fall and that there will continue to be an oversupply of containers in the future. However, as the shipping companies are currently able to serve the low cargo volumes with their own container fleets, it can be assumed that we will have to expect bottlenecks in the new container segment. Special containers in particular will remain a rare commodity.

Finally, in the long term, we expect high energy costs to have an impact on global trade. For example, transit times could increase in the long term if shipping companies try to keep fuel consumption as low as possible, for example by "slow steaming" their fleets.

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