Covid 19 Shipping Crisis
What's going on with shipping rates?
Recently there has been a boom in shipping prices per container. What used to cost $2000 for a standard 20 ft container from Asia is now $12000 USD or higher. Even at these prices, shippers are still fighting for shipping slots as demand outstrips supply of container slots on ships.
What has caused this?
Global container demand has gone up 5%, this should have been easy for the shipping industry to handle.
However, the pandemic affected shipping globally. As the pandemic stopped people from going out for outside entertainment and restaurants, people stayed in their homes. Having the extra time saw people start focusing on their homes and offices. Shifting their consumption patterns drastically.
Demand for services dropped dramatically changing a decades long trend of rising demand for services and demand for many goods rapidly increased, something that most people selling those products did not expect leading to shortages in throughout 2020 for recreational goods and cars.
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Whilst there was a global increase in container demand of 5%, there was a particular spike in North American ports. At key ports such as Long Beach in Los Angeles, imports up to 40% higher than in 2019. The ports and hinterland infrastructure such as the trucking where unable to handle the spike in volume. This congestion has been problematic. Whilst there has been an increase in demand, supply of shipping spaces has decreased.
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Whilst there were some lulls around Chinese New Year by mid 2020 the container ships where sailing again and giving peak capacity. Since then capacity has dropped by 11%. What has caused this?
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01
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Spike in demand which caused congestion due to low capacity
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Ship stuck in Suez Canal which caused back log
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COVID outbreaks at ports themselves reducing capacity
Shortage of shipping containers.
What can we expect in the future?
Demand is going to remain high as many households now have excess income in the US, Europe and other countries. They were able to continue working from home and receive income and because they were not able to spend, savings increased. In addition to this, government responses to stimulus funding has been robust, also helping to sustain demand.
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Container prices are likely to remain high especially as we approach the shipping peak months. On the supply side, as long as there are no major COVID outbreaks in ports price may start to normalise. Looking forward there is likely to be a shift in longer term containers between container lines and shippers and container lines adding capacity.
reference: opinions, insights and graphs taken from McKinsey, August 2021
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