Shadow Boxing

There is a disturbing undercurrent in the chaotic scramble in Asia for slot capacity on ocean container lines, at least for shippers: a shortage of containers themselves. This threatens to prolong the capacity squeeze beyond the period when everyone would presume the return of laid-up capacity would bring vessel supply and demand back into balance.

It’s a sign of a growing concern as summer begins, when the year’s strongest volumes are just a few weeks away. And, although container construction is rebounding rapidly from a virtual standstill last year, unprecedented — and perhaps long-lasting — market dynamics are emerging.

Box manufacturing is not rebounding as quickly as demand would warrant, in part because it appears skilled laborers in coastal China, where virtually all containers are built, are not as plentiful as they once were, possibly prolonging the period of undersupply. More significantly, longer-term trends suggest even more boxes will be needed to satisfy the same level of demand the Asia-based trade lanes have seen in the past.

These developments include slow-steaming by carriers — which some believe may persist as long as oil prices stay high — as well as the extension of supply chains deeper into China and the development of two-way trade in major markets that had been heavily imbalanced.

In an interview last month in Geneva, we asked Gianluigi Aponte, head of Mediterranean Shipping, whether there is, in fact, a looming container shortage.

Here is his full response: “I believe it’s true. I will give you an example. When the dollar was very strong, we were carrying full vessels to the States. But our ships were coming back to Europe and Asia with very few full containers. We were repositioning mainly empty containers. And so what is happening today is that we carry, let’s say 3,000 containers to the States, and we come out with 3,000 containers full. What happens when you do this is that the 3,000 containers that you brought in, they go for discharge to the client and they come back empty. And they go to another client to be filled again and come back full. And then they are shipped to the destination. When they get to the destination, they go to the client, who has to break down the container and bring it back.

“So the idle time of the container in the States, if before it was a week, now has become three weeks, and the same in Europe. So in other words, where you needed, let’s say two containers, now you need six containers. That is the reason why today there is a shortage of containers, and this is worldwide. For example, China was importing very little and exporting a lot in the past. Today, they are still exporting a lot but they import a lot because the country is starting to consume.

“So we are full to China and we are full coming back. And we are full to India and full coming back. Before we were empty to India and full coming back. In Russia, we were only bringing to Russia and coming back empty. Today we are coming back full. So the world has grown dramatically, the world is consuming, and the result of this evolution makes each nation import and export. And this is absorbing a lot of containers.”

Add to this slow-steaming, which requires an estimated 5 to 7 percent more containers to carry the same amount of cargo, and it’s clear that new operating dynamics are in play.

The pressure on manufacturers is building. Since the third quarter of 2009, when factories began reopening after a year of inactivity, 34 are reportedly now in production and will turn out an estimated 1.9 million TEUs this year, more than five times last year’s total but still less than the 2.6 million to 4.2 million produced annually before the recession, according to a May 18 Nomura Securities report.

Given an expected 1.5 million TEUs of disposals (some believe that estimate is high), Nomura estimates the global container fleet will grow only 1.9 percent this year to 27.6 million TEUs. This is against forecast cargo volume growth of 10 to 12 percent. Nomura sees the global fleet growing just 7 percent in 2011. That sounds like a shortage, and there are signs of that in the market, with “sweeper” ships appearing with greater frequency at U.S. ports, carrying away nothing but empties, and box lessors reporting unheard of utilization levels of 98 percent.

“We’re trying to get every single container we can get our hands on from the factories,” said John Maccarone, president and CEO of San Francisco-based lessor Textainer.

That’s good news for some in the market. Nomura has a buy recommendation on the two publicly traded box makers, CIMC and Singamas, which together account for 60 to 70 percent of production, citing demand and upward pricing pressure.

In its report Nomura said, “We foresee strong order momentum continuing in the coming months and shipping carriers continuing to face box shortages. Furthermore, container manufacturers’ ability to raise box (prices) from an average of US$1,600 to $1,700 per TEU in 2009 to US$2,200 per TEU now, highlights strong box demand.”

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com.
 

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