Depots and Carriers Struggling with Excess Container Capacity
November 25, 2022
In the midst of the Covid-19 pandemic, sea freight in Europe faced a shortage of containers. Today we’re having the opposite problem: an excess of containers. In addition to declining rates, depots are either full or are quickly filling up, with some operating at 99 to 100 percent capacity. This trend is associated with a decline in global demand, combined with an impending recession. The fact that many operators bought new containers for one-way sailings is only aggravating the situation further.
Why Are Depots Facing Excess
Depot managers point to the fact that container volume has skyrocketed to the extent that they are unable to accept new customers. Whatever was shipped in and out before is stuck. One reason for the excess of containers is that the shipping peak season, typically starting mid-August, did not happen in 2022. Retailers report high levels of inventory and are cautious about overstocking. While cargo is shipped on time now, there is a slowdown in demand, mainly due to rising inflation.
The onset of the pandemic caused a spike in consumer spending, leaving carriers struggling with insufficient capacity. Many retailers began ordering shipments ahead of time in an attempt to avoid delays and low inventory levels. Yet, now the majority of medium-sized and small businesses are faced with a decline in demand due to consumer spending shifting back to services, combined with inflation.
At the same time, experts point out that once inventories exhaust across Europe and the U.S., businesses will start ordering again, with a corresponding increase in demand for containers. While demand is unlikely to reach maximum Covid-19 levels, we are likely to witness a long-term upward trend.
How Are Depots and Shippers Coping with Excess Container Capacity
To deal with the problem of tightly packed depots, some port service providers like the Port of Houston Authority began to charge fees for containers lying idle in terminals. To facilitate cargo movement, the dwell fee ($45 per unit/day/ will be levied on containers held in the port for 8 days or longer.
Shippers are also faced with excess capacity and are increasingly giving containers away to alleviate pressure on overcrowded depots. As economic and geopolitical risks constrain consumption and drag down demand for containers, more and more carriers either cancel or opt for blank sailings. Additionally, some shippers have been forced to resort to measures like dropping slot capacities, off-hiring smaller ships, and reducing available tonnage on major routes. Some carriers have also chosen to diversify their operations outside the shipping industry, while others are investing their surplus cash across the supply chain. Diversification is mainly done to spread and minimize financial risk.
What Can Be Done to Resolve Excess Capacity
Carriers can take a number of different approaches to excess capacities, such as finding alternative uses for containers, implementing scrappage schemes for older units, off-hiring leased units, as well as slowing down on new unit orders.