Poor circulation in shipping container movement has drastically affected global supply chains and caused major sea freight delays. This has resulted in massive holdups to cargo shipments worldwide. This downturn was sparked by the Covid-19 outbreak that spread across the world. The consequences of this have, as they expanded and deepened, seriously impacted on sea freight. This has pushed freight charges up and caused enormous bottlenecks that are unlikely to ease in the near future.
Sea freight delays caused by poor shipping container circulation
What is shipping container circulation?
Sea freight is the backbone of global commerce, with around 90 percent of commodities moved by cargo ships. Approximately 60 percent of all global cargo was shipped by sea container, approximating some US$14 trillion for 2019.
The enormous variety of goods is transported in several types of standardized shipping containers. Shipping container circulation is the flow of this vast fleet of shipping containers as they are:
- Loaded at factory, warehouse or port
- Freighted by cargo ships
- Held landslide in ports and warehouses
- Transported overland by rail or truck
- Unloaded at ports and warehouses
- Stored for re-use or repositioning
It is estimated there are more than 17 million shipping containers currently available. Only around 6 million of those are in use. This means there are around 11 million shipping containers empty and standing idle.
Sea freight delays not from shortage of new shipping containers
Poor shipping container circulation has happened before
Just prior to the 2008 financial crisis, shipping lines started to operate their cargo ships at less than their normal running speed. Instead of the usual 20-24 knots, they slowed the ships down to 12-19 knots. The practice reduced fuel consumption and carbon emissions but decreased the amount of cargo shipping lines can carry over a given timeframe.
This change to the usual flow of cargo and triggered a poor circulation in shipping containers and caused various disruptions. However, after some time, the global system adjusted to the change in pace and shipping container circulation returned to normal.
What factors have caused the container circulation slow down
Diminished worker efficiency at storage facilities and seaports are some of the factors currently impacting container circulation. There is, however, no simple or quick solution; clearing the backlogs will be a slow process.
The myriad of jobs covered by ‘port labor’ span all aspects of cargo handling in a port zone. Cargo handling operations at terminals lie at the core of the function of ports. When there is a slowdown of cargo moving in and out, the need for workers falls off. This affects the port’s operations because with fewer workers less can be done – and with less being done, container movement is further slowed.
Strong ongoing volume growth and reduced labor productivity are causing congestion in factories at route origins, storage facilities along the route and warehouses at destinations. This further impacts on container fleet utilization overall. So just when more capacity was needed, reduced container circulation has resulted in less. This has caused massive sea freight delays. Until bottlenecks are relieved and the holdups ease, the volume that shipping operations can carry will remain impacted.
Not due to shortage of containers
Insufficient new containers is not the problem. Around 2,800,000 TEU of general purpose containers were added last year, which is typical across the past decade. Shipments, however, increased greatly in the later six months of the year when compared to the first six months as a result of China’s recovery from the impact of Covid-19. The industry also added approximately 300,000 TEU of refrigerated container space, which is close to the decade average.
There are plenty of general purpose containers, but shipment routing options are bottlenecked and movement has been slowed. A significant number of empty containers have been left in places where they were not needed, and repositioning them had not been planned for. As the congestion has increased and network flow further delayed, container speed has greatly reduced. This makes container shortages appear worse than they are.
Factors slowing circulation and cause sea freight delays
How severely container utilization has been hit is moot. For east-to-west passages, a general-purpose shipping container is normally in service six times annually, and a refrigerated container four times annually. When shipping over shorter distances, containers are used more frequently.
It is not clear how much container utilization may have been reduced over the last year and how it compares to normal service rates along routes. It is believed, however, that productivity deficiencies are slowing containers down and will show a significant drop in these service rates. Until there is clear data on service rates, an examination of these productivity deficiencies may be used to estimate the drop in container utilization, contributing to the appearance of shipping container shortages.
Landside delays has container utilization reduced by half
Landside operations are used to hold, handle and transport cargo to other destinations. They include work done on the containers when they are unloaded from the cargo ship such as:
- Storing
- Protecting
- Transporting
These landside services are provided by the terminals, trucking and railroad companies. Any or all of these can be impacted by economic downturn, reduced labor productivity, production slowdown, or regional or global crisis such as the current pandemic. This results in massive delays or stagnation on the docks, at seaports and in the warehouses.
One major shipping line is known to have had its container utilization halved due to the severity of the landslide delays. Other major shipping lines, such as Hapag-Lloyd, are prepared to publicly admit that their container utilization has been affected but say the decrease has not been that large.
Making more containers is no quick fix
Hapag-Lloyd stated that its container utilization was down, on average, 10 percent over September through December last year. While that may not sound much, the number of containers required to make up the shortfall is the same amount. For Hapag-Lloyd, this means a TEU increase of between 250,000 to 350,000 was required to ship a similar amount of freight. With few shipping container manufacturers still existing in the market it will take time to have those additional shipping containers built. This is no quick fix for the shortfall.
Regional disparity in container availability
In the view of many industry analysts, the shortage of containers is not evenly distributed worldwide. It seems to be worse on the busier sea freight routes, such as the Pacific crossing.
In some trade routes, there has been significant reduction in container deployment due to increased time from production-to-shipment. For example, across the world fleet overall, these times have been around 65 days. Pacific crossing cycle times, however, have been reported as being more than 100 days. For certain trade lanes, shipping container availability has become the main capacity constraint.
Sea freight delays spread from interconnected container flows
Container routes interconnect worldwide. In the present situation, containers intended for Europe may be held up, for example, in the US. This means the cargo will either not reach its destination or will arrive way behind schedule. This has a snowball effect as it affects European business as well.
What factors slows shipping container circulation
When will ocean sea freight delays stop
There is reason to be hopeful, but as of mid-April there was little change on the horizon. It is believed this situation is temporary, and availability did improve a little after the Lunar New Year. It is likely, however, the problem will be around well into the second quarter of 2021. After that we can expect a slow return to normal freighting arrangements and cargo ship timetables.
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