With the rebound in container trades likely to last into 2018, container production might struggle to keep up with demand, according to some leasing companies that are now starting to worry that they could run out of containers after Chinese New Year.
A recent publication, Drewry Maritime Research: Container Census & Lease Industry, has predicted that slowed container production could compromise trade growth.
Lessors say the problem is compounded by new regulations introduced in April that require manufacturers to use water-based paint instead of traditional solvent-based coatings. This takes longer to dry in the cold, humid conditions of the Chinese winter, slowing delivery and clogging up storage space. Added to this, Chinese plants often shut down in February for maintenance, followed by the more general shutdown for the Lunar New Year.
How might this affect freight parties?
For the shippers that fill the steel boxes with their cargoes, the prospect of equipment shortages, even if only temporary, will be particularly scary as any limitation on space availability would likely drive up freight rates.
There is a fear there will be a shortage of containers in the coming year. Is it justified and will a lack of boxes really choke off trade growth?
Drewry’s analysis suggests the problem might be exaggerated.
Lessors and carriers took their eyes off the ball in 2016, responding to the extended downturn in container trade since 2013 and failing to anticipate the recovery seen in the past 12 months. They have been playing catch-up ever since, but it has hardly been an undignified scramble: carriers and lessors alike know that cargo surges can be transitory and are still hedging their bets rather than panic-buying. So if the cargo surge continues, the container industry will be starting from a position of weakness.
If the production forecast of 3.5 million teu this year is accurate – and it seems close enough – then this will mark a slight increase on the norms of recent years. Drewry has been predicting similar production of 3.5 million teu for 2018, and this still seems reasonable even if there is a squeeze at the beginning of the year.
It is notable that the loudest complaints have come from leasing companies. Their purchases of new containers have exceeded those of carriers in six of the last eight years, while they have also been buying up the carriers’ older stock of containers.
Most new purchases in recent years have been for replacement rather than expansion. That makes sense, since the leasing companies own a large number of older units bought from transport operators in recent years. If there is a tightening of supply, the leasing firms have much more scope to hang on to their older units rather than scrap them, thus artificially expanding supply. Those boxes will eventually have to go, but we are looking at a short-term tightening of supply rather than a long-term crisis.
All sources credited to Drewry's annual review: Container Census & Lease Industry
Whale Logistics are Australia’s leading Freight Forwarder and Logistics company located in Sydney and Melbourne. We deliver digital-focused freight forwarding services such as Australian customs parcel tracking, parcel delivery box, and comprehensive ocean, air and road freight solutions. For cost competitive and innovative freight forwarding solutions, or if you want to get in touch with one of our Customer Success Managers, drop us a line and we will be in touch shortly.