THE RAPID recovery of the Chinese economy relative to the rest of the world following the coronavirus pandemic has led to a surge in export volumes and a global container-market crisis.
China’s containerised exports are far greater than their imports, with three containers leaving China for every container arriving. Consequently, empty containers are stranded in the west when they need to be in Asia.
Chinese demand for containers is so high exporters are paying huge premiums for empty boxes. These premiums have climbed to such a level it is now more profitable for carriers to send the boxes back to China with no cargo, rather than waiting to have them refilled with goods destined for Asia. It is not entirely unusual for containers to travel back to the load-port empty after a voyage, especially if container imports greatly exceed exports at the destination. However, it is not usually a profitable exercise, and is far more common for shipping lines to backfill the boxes to boost round trip earnings and maximise income.
The cost of sending full containers from China to the United States is currently around 10 times higher than the reverse journey. This provides the carriers with a huge incentive to quickly reposition bare boxes back to China rather than waiting for them to be filled with US exports. It is estimated that 75 per cent of containers moving from the US to Asia at the moment are making the journey unstuffed.
This issue escalated late last year, just as US agricultural exports were entering their busiest period. It is estimated that shipping lines rejected almost 178,000 20-foot equivalent units (TEUs) of US agricultural produce, worth hundreds of millions of dollars, in October and November alone. And this was from just four ports: Long Beach and Los Angeles in California and the east coast ports of New York and New Jersey. Port congestion at the US West Coast ports of Los Angeles and Long Beach is also unprecedented due to high inbound volumes and surging COVID-19 cases amongst dockworkers. This has forced shipping lines to cancel scheduled sailings, not for lack of demand, but because of lack of tonnage as the huge container vessels are stuck at anchorage awaiting berths. And when they do berth the quickest turnaround option is to load out empties.
Spot rates high
In December, the spot freight rate for the Asia to North Europe route was 264 per cent higher than December 2019, and for the Asia to West Coast US route the rate was up 145 per cent compared to a year ago. Rates for both the China to Europe and China to US routes have surged more than 300 per cent compared to the market low in March last year with freight now costing around US$6,000 per container.
There are approximately 180 million containers worldwide, and when COVID-19 hit in early 2020, the shipping lines cancelled orders for new boxes for fear of a global recession. The speed and magnitude of the Chinese recovery has caught the industry off guard. It meant that almost all of the carriers needed to add significant container capacity by offering more services on the busy routes to address the container shortage challenge. The container-freight issue has been exacerbated by the plunge in international air-freight capacity. Air-freight providers usually buy the unutilised capacity in the cargo hold of passenger planes to transport high-value goods. The coronavirus pandemic, and subsequent global travel restrictions, has seen passenger services plummet, adding demand to the containerised sea freight market.
Another contributing factor is that containers generally move back and forth along the same shipping route. The disruptions to international trade caused by COVID-19 now mean that many containers are shipped off to one port and then get stranded as the volume of return trade has decreased. That container may then be packed and loaded out to an exotic location to utilise the asset, making it even more difficult to return it to its regular path.
Food importers around the globe depend on a reliable and efficient worldwide container market. While most market sectors have been affected to some degree, the passage of agricultural commodities has suffered greatly. Grain, oilseeds and other farm produce are piling up at port facilities throughout the western world and across parts of Asia. Pulses out of Canada, such as lentils and peas, have been stranded at port for weeks waiting for space on regular services to Asia. India’s sugar exports were only 70,000 tonnes in January, less than 20pc of shipments 12 months earlier. Vietnam is battling to find container capacity for its regular coffee and rice exports to the US. And US soybean and cotton exports are being rolled out the curve as they can’t find export slots. The list goes on.
Impact on bulk, meat
The situation is so dire some importers are switching to buying in bulk, putting upward pressure on bulk-freight rates. Some buyers are cancelling contracts as the counterparty has failed to meet terms. Others are deferring purchases to avoid delays and high freight costs. Domestic traders and exporters in many jurisdictions are reluctant to offer, especially in the nearby market, due to the freight market chaos. The global flow of refrigerated containers is also in turmoil. China’s rigorous customs-clearance process is causing lengthy delays at ports and a backlog of imported containers waiting to be cleared. Reportedly, there are so many refrigerated containers piled up in the port of Dalian that it is running out of power plugs to keep them operating.
This has been one of the key reasons behind the recent spike in China’s domestic pork prices. Retail prices have risen to their highest level since September last year, prompting Beijing to boost sales from state reserves ahead of the Chinese New Year holiday.
Pain down under
The story in Australia is no different. Container parks are reportedly full of empties, yet they are not being released unless the intended cargo will reposition the boxes back to China. Timber used to be Australia’s biggest containerised agricultural export commodity to China. When China imposed the timber ban last year, it was expected that the decision would free up containers for other agricultural exports. That simply hasn’t been the case. Australian grain is extremely competitive into Asia, and beyond, at the moment. Exporters are seeing plenty of Asian demand for containerised farm produce, but exporters and packing facilities are struggling to get boxes.
Instead, export slots are being rolled by weeks, even months in some cases, and some of the containers are being sent back to China empty as the shipping lines are being paid handsomely to do so.