Is it a shortage or a deployment problem?
That’s the question surrounding the increasing frequency of complaints among importers and exporters about a lack of container availability during a stronger-than-expected economic recovery and inventory restocking. The questions over a container shortage are all the more vexing when one sees stacks of 20-, 40- and 45-foot boxes in container yards from New York-New Jersey in the East to Los Angeles-Long Beach in the West — and when one considers container volumes are still well below pre-recession peaks.
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But therein lies part of the answer to the question of whether a shortage actually exists: Like the real estate mantra, it’s location, location, location. That is, a shortage of ocean containers in the U.S. Midwest may not exist in a load port such as Los Angeles. But for many, the shortage is real — and growing — for a variety of reasons, starting with the source. Container manufacturing ground to a halt during the recession, while scrapping picked up. During the boom years of 2004 to 2008, container manufacturers produced about 3 million TEUs a year. Last year, the box manufacturers all but shut down; this year, they are scheduled to produce only about 1.9 million TEUs. To John Maccarone, president and CEO of San Francisco-based container lessor Textainer, this spells trouble for U.S. importers during the upcoming peak shipping season. “I believe we will be in a shortage situation for the rest of the year,” he said. |
Securing empty containers is nothing new for exporters, especially those in the Midwest or in other deficit locations such as the Pacific Northwest.
But does that mean there’s a shortage? Not necessarily. Exporters generally face an equipment dislocation problem — now, in the past and, unless exports suddenly become the head-haul service in U.S. trade, in the future. That’s because exports typically originate in the Midwest with largely lower-value agricultural producers who can’t afford the high repositioning costs it takes to get a container from the coast to rural areas without decimating their bottom line. Exporters who move higher-value cargoes such as meat and flowers typically have more financial flexibility to pay for a container when they need it.
Imports, by contrast, normally move to urban centers and are high-value consumer merchandise. “Outbound is affected by location, not shortage,” said Ed Zaninelli, vice president of trans-Pacific westbound at Orient Overseas Container Line.
For retailers and other large importers, however, the dynamics of container manufacturing and positioning are normally ideal. Most containers are made in China. Much of the merchandise American consumers purchase is also made in China. The steady stream of new containers that leave the assembly lines each year move directly to the Chinese factories that produce toys, apparel, shoes, electronic goods and other merchandise packed into the containers and shipped to the U.S.
So, even with trade volumes again growing by double-digits, the container shortage in Asia perplexes importers. According to figures published by the Pacific Maritime Association, container volumes at all West Coast ports in the first four months of 2010 increased 13 percent over the comparable period last year. But this year’s volume is still 12 percent lower than the same period in 2008 — and there was no container shortage in Asia that year.
So what happened? One possible explanation: The global trade recession that began in late 2008 and lasted much of last year broke the container manufacturing and delivery chain. Container manufacturers shut down their factories and sent their workers home.
As a result, the total production of containers last year was 238,000 TEUs, said Ben Hackett, principal of economic forecasting firm Ben Hackett Associates. “I don’t think there was another industry that completely shut down like this,” he said.
The sudden late-2009 surge in trade caught shippers, carriers and container manufacturers by surprise. “Since the beginning of the year, container volumes have been growing at an unprecedented rate,” said William Rooney, managing director of the Americas at South Korean container shipping operator Hanjin Shipping. “That created issues, especially with the container production plants being shut down.”
Slow-steaming, an operational strategy carriers launched during the recession to cut fuel costs, further aggravated the container shortage. An estimated 78 percent of the vessel strings in the Asia-Europe trade and 53 percent in the trans-Pacific are engaging in slow-steaming or extra-slow-steaming — in some cases taking their vessel speeds 7 to 8 knots below the ships’ rated capacity.
When vessels are slow-steaming, it takes 5 to 7 percent more containers to carry the same amount of cargo, Maccarone said. Considering many of the vessels slow-steaming are among the largest on the ocean — 8,000-TEU capacity in the trans-Pacific and 10,000-TEU capacity in the Asia-Europe trade — hundreds of thousands of TEUs are tied up at any one time.
Traditional supply chains also have been extended, keeping containers in transit longer. Coastal China is still Asia’s manufacturing hub, but products and materials are also being sourced farther west in China and in Southeast Asia, adding days to international supply chains.
It all adds up to this: Importers are struggling to secure enough containers to carry their merchandise, even as vessel space becomes more plentiful. Carriers this year are bringing back or starting at least six trans-Pacific services.
Shipping executives say they are trying to fill the container void. OOCL recently sent a 5,800-TEU vessel to Los Angeles just to pick up empty containers and return them to China. “And we still had a surplus left there,” Zaninelli said.
Taiwanese carrier Yang Ming Line did the same out of the Port of New York and New Jersey last week. It’s a practice carriers traditionally did once or twice a year, but “it’s much more frequent this year,” said Ivo Oliveira, vice president and corporate liaison for Maher Terminals in Elizabeth, N.J.
Rooney said Hanjin is sending two unscheduled vessels of about 2,500-TEU capacity from Asia to the U.S. with cargo, and these extra-loaders will return carrying mostly empties. Hanjin also ordered new containers that are being delivered at a rate of 1,200 to 1,500 each week through July.
Maersk Line is leasing additional containers this year and has placed orders for new containers, spokeswoman Mary Ann Kotlarich said. The world’s largest container shipping company also is engaging in emergency evacuations of equipment from surplus areas.
Repositioning empty containers from surplus areas such as Los Angeles-Long Beach and New York-New Jersey is running its course, however. Maccarone said Textainer’s fleet is 97.6 percent utilized, a new record for the $240 million-a-year container lessor. Textainer’s fleet is booked out at 99 percent if all of the orders are fulfilled. “We’re overbooked even in New York and LA,” he said.
Container manufacturers in Asia are back in business, although they have struggled to find enough workers, especially skilled laborers. Container shortages seem to be the worst in North China and some other Asian locations because most of the container factories are in South China.
Container production next year is scheduled to return to a more normal 3.3 million TEUs, with another 3.7 million TEUs scheduled for 2012, but that will be too late for the 2010 peak season.
Manufacturers could exceed the projected 1.9 million-TEU production this year if factories would add a second shift, but they are uncertain about the strength of the global economic recovery, especially given Europe’s debt problems, Maccarone said.
In a welcome change of events for exporters, there appears to be enough vessel capacity for all exporters and enough equipment for exporters who will pay — an important distinction — to have empties repositioned to their facilities. Zaninelli said the new services in the Pacific should give exporters enough capacity and equipment until the fall harvest, when conditions could tighten again.
Contact Bill Mongelluzzo at bmongelluzzo@joc.com.
