Supply Chain Fears Amid Container Shortage

A US rating firm has warned the economic slowdown is placing pressure on global supply chains as stocks of containers, used to ship goods across the world, are running out.

Kroll Bond Rating Agency (KBRA) has released new research on how the coronavirus (COVID-19) pandemic is impacting the marine container industry.

It warned the global spread of COVID-19 is impacting multiple aspects of global trade, including shipping.

“China is the world’s largest exporter of goods and accounts for 40% of the container shipping business,” said the firm. “In 2019 alone, the US imported approximately $452 billion worth of goods from China.

“Factory shutdowns in that country, as well as the curtailment of production because of quarantines implemented to slow the virus, resulted in supply chain disruptions that led to containers accumulating at various ports. In addition to supply shortages from factory closures, many municipalities outside of China have initiated lockdowns resulting in a decline in demand and consumer spending.”

As a result, many freight sailings have been cancelled (also known as blank sailings) through May.

The issue currently is that while employees are returning to work and factories are restarting in China, retailers in the US and other western nations are being forced to close and not taking deliveries, creating further issues.

“Although shipping volume has decreased, there is reportedly a current shortage of available containers in the industry,” said KBRA. “The earlier shutdown in China caused a shortage of port workers, causing a dislocation where containers were unloaded at less popular ports that are atypical stops for major shipping lines.

“Now the shipping lines have containers anchored at ports with no customers to fill them, as the ships are not returning to the aforementioned ports, and it can cost as much to transport an empty container as the container itself.

Additionally, in the US many retailers have closed stores and have stopped taking deliveries, so containers are not moving inland and are piling up at West Coast terminals. Combined with the increase in blank sailings, this has caused substantial logistical challenges.

“The availability of marine containers at major ports outside of China, located in Hamburg, Rotterdam, Antwerp, and Long Beach, are at the lowest levels ever recorded. There are reports of exports running behind as much as two months, as China cancels sailings. This stress on the supply chain is extending delivery wait times and increasing costs along the way, including container per diem rates.”

The research said the expectation is that as the logjam clears the supply chain disruptions will dissipate. This should result in the shortage eventually turning to surplus as supply exceeds demand, but there is significant uncertainty regarding the long-term economic impact that this crisis will have on the global economy. Historically, dry container boxes have more volatile lease rates as they carry manufactured goods subject to shifts in economic cycles. Reefer containers, on the other hand, are historically less affected by slowdowns in the global economy as they typically carry necessities such as food.

“While these patterns are expected to repeat themselves, the current situation surrounding COVID-19 is unprecedented,” added the firm.