Container imbalance is a perennial issue that plagues the freight forwarding industry, but never before has it felt like such an insurmountable obstacle. The extreme circumstances of the coronavirus pandemic have pushed this slowly growing but persistent challenge to the forefront.
If the global supply chain is to operate as efficiently as possible, intermodal containers must flow harmoniously between destinations to ensure supply is able to meet demand. The economic effects of COVID-19, however, have created a gross imbalance between capacity and demand.
Let’s take a deep dive into the current container imbalance and what it means for the industry as we move forward into a new year.
What is container imbalance?
Container imbalance occurs when there is a shortage of containers. Generally, containers carry goods to a country/port, then those same containers are used to bring goods back to the country of origin. When exports match imports, the system runs smoothly. But when a country has nothing to ship back, the containers sit empty at ports and warehouses while the original destination faces container scarcity.
Additionally, when cargo builds up in warehouses, port terminals, and inland depots — which has been happening frequently during COVID-19 lockdowns, according to the International Federation of Freight Forwarders Associations (FIATA) — warehousing capacity is maxed out, and containers are not emptied and returned to service.
If a locale needs containers, they must pay high fees — container imbalance charges (CICs) — and/or face profit losses to get them.
Why is container imbalance currently an issue?
Container imbalance is currently an issue because of the worldwide impact of the coronavirus pandemic on every link in the supply chain. Disruptions in manufacturing and a disparity in imports and exports have exacerbated container imbalance.
Trade growth worldwide has created a higher demand for containers. In fact, according to Triton International, the demand for containers spiked in the third quarter of 2020, with utilization almost at full capacity. All available dry containers were booked, and it’s expected that new orders from Chinese factories will not be delivered to Europe until the spring. And, because of the structural imbalance between China and Europe trade and the coronavirus’ global impact, westbound volumes are much higher than eastbound streams, so containers moving from China to Europe can’t be returned on time.
In September, RailFreight.com reported that all major carriers were experiencing a shortage of containers at Asian ports, particularly in China. The deficit is mainly in 40-foot containers, and many carriers are restricting the release of empty containers before they’re scheduled for shipment.
Additionally, back in April, FIATA noted that ocean carriers’ use of blank sailings to accommodate Chinese New Year factory closures (which tend to cause global container imbalances around the world, even during typical years) was exacerbated by “the lack of container export shipments during the extended Chinese New Year period in China amid COVID-19,” as reported by FreightWaves.
Now, as U.S. imports continue unabated, it’s expected that the Trans-Pacific import boom will last at least until March 2021. Lars Jensen, CEO of SeaIntelligence Consulting, believes import demand will fall off when Americans shift their spending back toward services
“Predicting the [timing of] the letup is exceedingly difficult, as it depends on when U.S. consumers get confident about their future ability to spend money again on services such as travel, restaurants, bars, etc.,” he told FreightWaves.
Damien McClean, CEO of SIA Flexitanks, agrees. “I expect [Trans-Pacific demand] will be crazy all the way until March, after Chinese Lunar New Year,” he said.
What does container imbalance mean for you?
What the container imbalance means for you is potentially very significant spikes in cost. Whether those costs come in the form of surcharges or an overall rate increase, the container imbalance can really rock the boat if you’re not prepared.
In RailFreight.com’s September report, the outlet noted that additional cost of empty containers jumped from $500 per container to $1,200 per container in three days during that month. And, according to data from the Shanghai Shipping Exchange, the shipping fee from Shanghai to the U.S. West Coast rose more than 80% since June. In the first week of October, it reached $3,848 per 40-foot container. Prices for shipments to the East Coast jumped almost 70%, reaching $4,622.
Communication throughout the supply chain is vital: You’ll want as much visibility as possible into container availability so that you can incorporate that data into your strategic planning and maximize efficiency in your supply chain.
The pandemic isn’t the only driver of container imbalance; the disparity is also exacerbated by the consolidation of freight on fewer, larger ships, which is increasingly creating unexpected and problematic bottlenecks to the free flow of containers.
Now more than ever, it’s crucial to have the right partners in your supply chain, and to be as prepared and vigilant as possible for all possible outcomes.