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Home > Economics > Container crunch pushes shipping rates to record highs

Container crunch pushes shipping rates to record highs

Dec. 7, 2020 by Shruti Gupta

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Surging demand for Asian imports and a shortage of containers are congesting U.S. ports, causing headaches for companies importing from Asia, skyrocketing shipping rates and surging purchase prices for containers. Another result? The previously humble shipping container is now a star of the show.

Shipping rates for containers en route from Shanghai to Los Angeles surged to $4,081 per 40-foot container in the first week of December 2020 compared to $1,548 during the same week in December 2019, according to the Drewry World Container Index. For containers from Shanghai bound for New York, rates rose to $4,960 per 40-foot container from $2,590 in December 2019.

The shortage of 20-foot and 40-foot shipping containers is so significant that empty containers are being shipped back to Asia to respond to the sharp demand. Rising shipping rates along Asia-U.S. shipping routes make it more lucrative for carriers to cater to this segment (compared to U.S. exporters, generally producers of agricultural commodities) rather than wait for these containers to travel inland, reach exporters and then get back to the ports. The shortage of containers is also driving up the purchase price of containers themselves and leading to some ships leaving ports without full loads because there are not enough containers to be found.

The surging imports are causing congestion at ports because they cannot be processed quickly enough. Labor challenges at ports and at trucking companies (which haul containers to and from the port) are making it difficult to keep up with imports. Each day goods are in transit, there is an additional tariff cost equivalent to 0.6%–2.3% on the value of the goods, as estimated by a 2012 paper published by the National Bureau of Economic Research.

The congestion has also exposed infrastructure inefficiencies, lengthening delays and increasing costs at the various links in the supply chain. The congestion at ports and container capacity constraints have also caught the attention of the U.S. Federal Maritime Commission, which has announced an investigation into “potentially unreasonable practices” around container returns, demurrage and other port charges.

Earlier in the pandemic, shipping companies expected a longer period of trade declines, leading them to reduce sailings and container capacity. A better (and sooner) than anticipated recovery in consumer demand around the world is creating much of the current pressure. While most of this is pent-up demand that potentially will taper off, there is also the stay-at-home population that is consuming more goods than services, the arrival of the holiday season and a strong demand to replenish inventories, all of which are driving shipping rates to record highs.

Shippers and shipping lines have been caught off guard by the inability to forecast demand in 2020 due to the variability the pandemic has caused. Companies have had to purchase shipping capacity at spot rates due to unanticipated levels of recovery, ultimately increasing product costs for either the end customer, an intermediary or the manufacturer.

Predictive algorithms using multiple variables can help pivot logistics and fulfilment strategies based on real-time data, visibility across the supply chain and connectivity between the various parties in the supply chain. Companies should explore incorporating alternative data (for example, sensor data, social media, public records, web traffic, monetary exchanges, etc.) along with traditional indicators into their forecasting methodologies to be able to detect early demand signals and better adapt in the near future.

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Filed Under: Economics, Industrials Tagged With: china trade, global trade, Ports of Los Angeles and Long Beach, shipping, trade

About Shruti Gupta

Shruti Gupta is a senior manager and industrial products senior analyst with RSM US. She has more than 15 years of experience advising multinational clients on their transfer pricing planning, supply chain structuring, global compliance and controversy management strategies.

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