Slowdown in Container Circulation due to Reduced Labor Productivity
The slow circulation of containers, together with increased cargo volumes, has led to supply chain disruptions and reduced capacity, resulting in significant delays and rate increases. Box shipping rates have spiked due to strong demand and container shortages and are projected to continue going up.
Reasons for Slowdown in Circulation
The slow circulation of containers is due to multiple factors, including higher volumes, increased demand, and reduced labor productivity at marine terminals and warehouses. While some are blaming carriers for reducing capacity to match demand with supply, the main issues seem to be service reliability and labor productivity, combined with high volumes of cargo that are clogging warehouses at points of destination and factories in countries of origin.
Is There Really a Shortage of Equipment?
Given that the ocean freight industry added some 2.8 million TEU of dry containers, this is comparable to the 10-year average. The significant delays in delivery in the second half of 2020 has been a major issue and mainly due to the effect of Covid-19 on China. Carriers also purchased some 300,000 TEU of reefer equipment which is comparable to the 10-year average.
Are Carriers Abe to Address Container Shortage Problems?
How severe carriers have been affected by supply chain disruptions is a subject to debate. Reefers are usually used 4 times a year while dry containers are used 6 times on average along east-west routes. Usage is heavier on short-sea services. Some carriers report a 50-percent reduction in utilization due to landside delays. For others utilization is down by 10 – 20 percent which translates into a shortage of 250,000 – 350,000 TEU or 10 – 20 boxes required to ship the same volume of cargo. And while additional boxes are being built, this takes time given that box manufacturers are working under increased pressure and few of them are actually left.
At present, the main problem is the fact that container utilization is lower on certain geographies, routes, and trades due to significantly longer cycle times. The average cycle times are at about 65 days which is the norm, but some exceeded 100 days, especially along trans-Pacific routes. Because of the interconnected nature of sea freight in Europe with global container flows, Europe trades are also affected by containers caught in the Western hemisphere and shipped weeks or months behind schedule. The shortage of available equipment on certain trades and routes is turning into a capacity constraint that is affecting global cargo flows.
Experts share the opinion that this situation will persist during the second quarter of 2021, followed by normalization of carrier schedules and trade flows. Perhaps with vaccine rollouts picking up speed across the globe, the pandemic-induced reduction in labor and truck, ramp, and port activities will be overcome to address increased demand. Some warn, however, that the influx of new stimulus checks and resulting increased demand will perpetuate the problem even if more containers are relocated to Europe.