Container crisis forcing cargo owners to gamble

A critical shortage of cargo containers has forced owners to take ever more risky steps to ship their goods, a leading expert has warned.

Rahul Khanna, global head of Marine Risk Consulting at Allianz Global Corporate & Specialty (AGCS), warned that the COVID pandemic has left tens of thousands of containers stranded inland as the global shipping industry desperately seeks containers in order to ship goods across the world.

Speaking during the AGCS Marine Trends to Watch in 2022 webinar, Khanna said the world’s supply chain issues were centred in the lack of available containers. He explained at the start of the pandemic the shipping sector suffered a huge dip in business as manufacturing effectively shut down. It left containers stranded in ports and inland despots across the world.

However, in the middle of the pandemic with much of the population forced to remain at home the world saw a huge uptick in demand more goods which saw shipping firms under stress to find the necessary containers. Yet many of these containers were not where they would have been and have remained stranded.

“Even before the pandemic the new container orderbook was at a low level,” he explained. “With a shutdown of the manufacturing industry we saw containers which never reached their intended destinations. When demand increased in the middle of the pandemic these containers were out of place.”

Khanna said there has been a huge increase in the cost of shipping a container with the charges for a container to be shipped from China to the west coast of the United States having increased fourfold.

“We are seeing vessels backed up outside of ports which is slowing the supply chain and supermarkets are running out of goods,” he added. “However the new container order book is now at an eight year high, but this will not provide a solution in the short term.”

His comments came as 65 large container vessels were queued outside the ports of Los Angeles and Long Beach, with the shipping times between Asia and the US having almost doubled in the past year.

It has led to desperate cargo owners looking for ever more risky and dangerous ways to ship their goods Khanna warned.

“We are seeing increased evidence of poor packing of containers particularly with the smaller shippers which have been hit by the increased costs. Worryingly we are seeing poor quality containers which had been taken out of services now being used to move goods with the risks that come with using containers that are not fit to carry cargo.”

Khanna added: “With the stress on the container lines given the demand we are now seeing cases where containers are being loaded into bulk cargo vessels as owners look to get their goods.

“Bulk carriers are not designed to carry containers. They can be adapted but they would need to undergo clearance from the class societies and an understanding of the safety issues that would need to be addressed.”

Jonathan Moss, head of Marine and Trade at law firm DWF, said the container crisis was set to a be long term issue for the global supply chain.

“The supply chain has faced major disruption globally due to the shortage of shipping containers, particularly since the Covid-19 pandemic,” he said. “With factories closing and transportation coming to a halt, many empty containers have been left at ports and the amount of vessels at sea dramatically reduced. Further, tighter restrictions, minimal staff, together with a backlog of containers have caused catastrophic problems for the shipping industry.

“Whilst shipping containers were being exported from China, as China recovered from the initial effects of the pandemic, a relatively small proportion arrived at their rightful destinations owing to the EU and US’s strict lockdown procedures. These caused significant delays for shipments, adding weeks and sometimes months to the cargo delivery time as ports were closed or operated with a skeleton workforce.

“Serious delays have meant freight companies paying over the odds to receive shipping containers quicker than their competitors.”

“Many recently built container vessels are exceptionally large, limiting the ports they can berth at,” added Moss. “If more medium sized vessels were constructed, there would be a greater opportunity for ships to berth, avoiding congestion and allowing ships to navigate more effectively. With the surge in online sales, however, there is an increasing need for very large ships to maintain this influx in cargo.

“Marine Insurers will feel the pain with notifications across various insurance lines as vessels are delayed, cargo is undelivered, contaminated and lost, with consequential losses and business interruption losses claimed along the way. The effects are, however, far more wide reaching for consumers who are facing a rise in the cost of everyday essentials. Shipping delays are a significant disruption for containers and two blockages in the Suez Canal combined with the unprecedented effects of the pandemic have created a perfect storm. Container imbalance together with a shortage of containers is hurting global trade. Containers are building up in some ports and unavailable in others causing bottlenecks, adversely affecting buying patterns and driving up prices in the shops.

“Arguably, there is no quick resolution for the container crisis. It will take time before supply chains can be back on track globally. While there are suggestions that the shipping industry cannot keep up with global demand, improvements are being made. Key players in the supply chain are discovering ways the operation of vessels can become more resilient to unexpected change.”

“Even before the pandemic the new container orderbook was at a low level, with a shutdown of the manufacturing industry we saw containers which never reached their intended destinations. When demand increased in the middle of the pandemic these containers were out of place.”

Rahul Khanna, Allianz Global Corporate & Specialty (AGCS)

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