Will there be a container shortage this year? Until last year’s slot capacity shortage hit the trans-Pacific market, mass shortages of containers were unheard of. A shortage of containers was wrapped up with overall tightness of vessel capacity last year, but box shortages contributed to the extreme, if momentary, tightness of capacity.
This year, of course, is different; virtually no one is saying vessel capacity will be tight. But because the two largest container manufacturers virtually shut down in 2009 because of a lack of orders and have not yet completely restored their China-based production to full capacity, anyone living by equipment availability can’t easily dismiss the prospects for a box shortage.
Of course, in transportation there are “shortages” where equipment can be had at the right price, and there are true shortages where space or equipment can’t be found at any price.
Carriers are warning of the potential for a true container shortage during this year’s peak season. As Maersk Line CEO Eivind Kolding told The Journal of Commerce, “There is actually a question mark as to whether the new production is able to deliver what is needed to cover the growth.”
The World Shipping Council issued a report last month citing slow-steaming, growth of intra-Asia trade and the after-effects of 2009, in which only a half million boxes were manufactured versus an average of 3 million in each of the past five years. “Equipment supply will be tight during the 2011 peak shipping season,” it concluded.
It is not surprising some shippers have greeted such statements with skepticism, especially following financial reports from carriers that included losses in the first quarter and the possibility that demand won’t improve fast enough against growing slot supply to bring back profitable rate levels.
“It is quite possible carriers are overplaying the ‘potential’ of (a box shortage) to some degree, for their own obvious benefit on the pricing front,” said Neil Dekker, a container analyst with Drewry’s.
Shippers are looking directly at the movement of goods and not seeing the problem. “Year-to-date, we have had zero issues with container availability or vessel space,” one large beneficial cargo owner told me. “None of our carriers had advised they would not meet our forecast volumes.”
A top executive at a major container lessor sees it this way: There could be a shortage, but only in the event of a runaway peak season.
He believes the stage is set for tight supply, noting there are few idle containers at depots, and that could spiral into a shortage if demand were to spike. “There is no depot inventory anywhere in the world. There are no spare containers other than the ones that are sitting at the container manufacturers,” the executive said.
He said the main container manufacturers — China International Marine Containers Group, Singamas Container Holdings and CXIC Group Containers — have perhaps two months of finished containers freshly painted, with logos emblazoned on them, ready to send into service. They could vanish quickly, he said, if demand accelerates. But, he said, “Honestly speaking, we have yet to see that kind of demand from the deep-sea carriers. By this time, I would have been expecting them to be screaming for containers like they were this time last year. It tells me they don’t need them.”
The boxes, he said, will move when shippers want them. “If and when the peak season takes off, we’re going to be deluged by everybody screaming at the same time for containers,” he said.
In other words, it all hangs on the peak season. Just as carriers said last month that they need favorable supply and demand conditions to recover financially, the container shortage will only become real if demand grows sharply. The issue really turns then on whether the economy’s “slow patch” is merely a lull.
And here the picture seems grim. The U.S. economy is slowing, with a significant deceleration to an annual rate of 1.8 percent growth in the first quarter. The global economy is slowing as well. In the U.S., higher prices for food and gas, combined with stagnant wages, persistently high unemployment and a crippled housing market, are dampening the outlook. JOC Economist Mario Moreno revised downward his growth forecast for U.S. containerized imports, from 6.5 percent to 4.7 percent.
“The consensus forecasts started 2011 full of optimism and have been steadily declining,” Moffatt & Nichol economist Walter Kemmsies said. He has a somewhat brighter outlook, noting retail sales are running 8 percent higher than a year ago, while inventories are only 5 percent ahead of last year.
“The peak to trough decline (third quarter of 2010 to first quarter of 2011) was very severe, so there could be some catch-up in third quarter,” he said.
Of course, the equipment would have to race to catch up as well.