Q&A: The Container Shortage's Effect on the Industry

Editor Dana L. Brundage and Senior VP of Strategy Peter Tirschwell discuss the current container shortage ordeal, how it will affect this year's peak shipping season and whether a slowdown is imminent in the second half of the year in this podcast.

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Transcript of the container shortage podcast:

Q: Peter, there’s been a lot of talk about the current container shortage, what has caused the shortage, and there’s even been speculation as to whether the shortage is a myth. Data is showing that shipping volumes are high and carriers are posting good profits in the second quarter. What are your thoughts about what is going on here?

A: Well if you look at the numbers, you look at what happened, last year in 2009 container production came to almost a complete standstill. The process of ramping up to accommodate the growing trade volumes in 2010 versus 2009 has been somewhat of a slow process. They haven’t been able to get the factories up and running. Virtually all of the containers are made in coastal China. Everybody has been reading about labor shortages throughout the industry in coastal China and it has affected container manufacturing. If you look at container prices and also the analysts’ reports on the major container manufacturers, like Singamas and CIMS, both of those companies are reporting much higher prices for new containers. And the analysts are as a result bullish on these stocks. So it kind of gives you an indication that the container shortage is real. Plus we talked just the other day to I would say one of the top five BCO in importing in North America. And that guy said that while the vessel capacity situation has lightened up a bit, the container tightness on the containers themselves is continuing. I think it’s not a myth, I think there’s enough evidence to suggest that it’s real. I think the question is how long is it going to continue.

Q: With what is normally labeled a peak shipping season approaching, what are your thoughts on what the industry will experience over the next few months because of this shortage?

A: One of the reasons why there is a shortage right now is because there is so much anxiety on the part of the major importers right now as to how much vessel capacity will be available and even how many containers will be available that there are indications in the numbers that the peak season is being pushed forward. We carried a story last week about Hasbro who was advising its retail customers to push forward their shipping, so that they’re not caught during the height of the traditional peak season say in August/September/October period, so that says a lot about the current frame of mind of major importers where they are, I think, very uncertain about how much capacity is going to be available later this year. And as a result they are pushing ahead their shipping schedules.

Q: Peter, you wrote a piece for JOC.com called “Don’t Be Fooled by Freight Volume Surge” in which you note that while there would appear to be a freight recovery trend happening right now, data still show that consumer spending is low and unemployment remains high. Does this point to an imminent slowdown over the next six months?

A: It certainly could. It could certainly point to a slowdown in container volumes. I certainly wasn’t the only one saying that. Some of the container lines themselves have been saying that the double-digit increases that they’ve been seeing versus last year are not necessarily sustainable. You have economists out there saying that the shipping surge is a, to a large degree, a restocking-lead recovery as opposed to an actual underlining demand-lead recovery. You have a pull back in the price of shipping stocks…stock prices of shipping companies in the last six weeks to two months to the tune of 15 percent. The equity analysts that follow those are saying that the market is sensing that the volumes may not be driven by underlining economic demand but really might be restocking and might be related to tactful decision making such as Hasbro shipping early to avoid problems down the road. So yeah you could see some slowdown. And indeed, the BCO who I mentioned earlier, said that the supply and demand situation on the containerships themselves is beginning to ease, meaning that you look at the volumes and you look at the amount of capacity that the carriers have added back into the market and you’re beginning to see the signs of a market that is not going to be as strong as the incredibly strong market that existed in the first quarter.

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