The COVID-19 pandemic has had countless significant, unexpected and disruptive effects on the entire world. These disruptions have affected everyone’s lives, and unfortunately, some have been more widespread and challenging to deal with than others.
Suppose you were one out of the millions of consumers that contributed to the massive 39% increase in online shopping during the pandemic. In that case, you may have noticed significant delays in shipping periods.
COVID-19 has had the tendency to disrupt every aspect of life, and this certainly doesn’t exclude trade and shipping. This delay in shipping can be attributed to many factors caused by the pandemic, however, has ultimately resulted in what is being called the ‘Global Container Shortage’.
So, how exactly does the container industry work, why has the industry ended up in this state, and what effects will it continue to have on global trade?
How does the Shipping Container Industry Function?
Shipping containers have more recently been used for an extensive and diverse range of purposes. However, their traditional use, and the primary source of concern for this shortage, is their functionality as the main transport mode for global trade.
An overwhelming 90% of goods are transported by sea, with 60% packed in shipping containers. Shipping containers are essentially just steel boxes used to ship anything to anyone from anywhere. However, today’s global economy runs on them as the standardised form of shipping. With formal checks and procedures in place, a good system has been developed to streamline the international movement of goods. There are three main stakeholders involved including the importer, exporter, and the shipping company, all of which have a say in the process.
The containers are standardised by being made in specific sizes, suited to be transported efficiently over long distances without being opened. Their ability to fit onto many different forms of transport with great ease has ultimately transformed the shipping and transport industry.
Goods have been shipped via shipping containers for decades, proving to be a rigid and historically effective form of transport. In their success, they have proven to be able to combat external factors that contribute to delays including:
- Changing customer habits,
- Demand for shipping containers,
- Freight rates, and
- Port congestions.
What has changed for the industry is the interference from the pandemic. The influx in consumer purchases during the pandemic means shipping containers are in demand than ever and has exacerbated all factors at once. As a result, the industry is unable to adapt as it usually would and finds it understandably challenging to combat the delays.
What is the Issue?
As mentioned, delays are generally inevitable. While the shipping container industry typically adapts well, the pandemic has essentially broken down the whole system as its structures.
To put things into perspective, over 25 million containers are used worldwide that make 170 million trips per year. This excludes the additional 55 million trips they make when they’re empty, on return voyages, or aligned with demand.
The system works on a vast scale, so when met with sudden, unpredictable shocks such as the pandemic, it can fall to pieces drastically. As a result of the system breaking down, it has caused:
- Pricing inflation,
- Delays in shipping,
- Effects on global trade, and
- Container space shortage.
Ultimately, the issue is not that there aren’t enough shipping containers in the world. Some companies are producing record volumes of shipping containers. Instead, the containers are in the wrong and inaccessible spots due to disrupted schedules.
COVID-19 and Shipping Delays
The pandemic has had drastic effects on the shipping container industry. The question remaining is how exactly it has done so?
Changing Consumer Habits
As anyone living through the COVID-19 pandemic would know, it has dramatically impacted human behaviour in many unpredictable ways. Specifically, consumer behaviour has fluctuated throughout the pandemic, and many industries have found it difficult to adapt quickly.
Evidently, when there is an influx in consumer purchases, the shipping container industry cycle becomes disrupted and can cause delays. While this issue is not exclusive to behaviours specific to the pandemic, it has exacerbated it.
Postal and shipping services generally have practices in place to combat the influx of shipments during peak customer times such as Christmas. However, COVID-19 has rendered these useless. Now that consumer behaviour is even more unpredictable, companies find it extremely difficult to adapt quickly enough to these changes.
In the initial stages of the pandemic in early 2020, consumer demand decreased, and many shipping lines cancelled their routes. In addition, the uncertainty of this period meant people were staying at home, worried about job prospects, and being less frivolous with their money.
This didn’t last long, as consumer demand rapidly increased as people began to adjust to the situation and spent a lot more time at home and on the internet. Here, it was easy to make online purchases as a coping mechanism, panic buying bulk items, or purchase goods as entertainment during lockdown periods.
Demand for Shipping Containers
With consumers avoiding visiting stores in person, online and international purchases were booming, rapidly increasing the demand for shipping container use. This increase in demand was much more substantial than what could have been expected, which meant the industry was not prepared to supply containers sufficiently.
During the initial decrease in demand because of COVID-19, many containers ended up in depots or stored in cargo ports. This meant that when demand increased rapidly, the containers were not in readily accessible locations.
While some larger countries began to recover slowly, other countries were and are still faced with national lockdown restrictions, preventing containers from being transported to where they are needed and continuing the trade cycle. The lockdown regulations and staff deficits during the pandemic are the main culprits causing transport limitations. In a time of increased demand, this meant a backlog of containers began to develop. Ultimately, this demand that is not being met means it has been taking much longer for anything to be shipped, and containers are appearing to be in short supply.
As a result of overwhelming demand driven by the global pandemic, the subsequent severe container shortage has increased freight costs.
In an attempt to cope with and combat increasing operational costs and container demands, shipping companies have increased freight rates. This was an attempt to reduce trade so that the container shortage could be addressed and solved quickly.
More specifically, longer routes mean more ships are required for a weekly service, and subsequently, more containers are stuck on these ships. As empty containers are scarce commodities, certain importers must pay for the transport of the container in addition to the holding cost of the empty container. While this does not solve the issue of the container shortage, it is an attempt to deter the use of shipping containers until they are less scarce. This increased freight rate has made it more costly for carriers to return empty containers in the process.
During normal periods, port congestion does occur when there is perhaps a decrease in shipment needs, or when workers happen to go on strike. However, this can usually be addressed as an isolated issue. However, the pandemic has meant that this issue is much more challenging to solve, as there are now several other factors simultaneously at play.
During the decrease in online consumer behaviour at the beginning of the COVID-19 pandemic, shipping companies reduced the number of cargo ships sent out to match demand. This meant that the usual flow of imported and exported goods was significantly altered, and empty containers were not regularly collected.
At the time, this dynamic seemed harmless. However, now that demand has rapidly increased, containers are in appropriate locations and are congested into inaccessible ports. In addition, the pandemic restrictions resulted in inadequate staffing, which meant the containers began to pile up. Then, as borders continued to tighten, customs became another complicated factor that worsened the congestion.
At this point, there were too many containers in the backlog for the limited number of workers to clear. North America in particular currently faces a 40% imbalance, where for every 100 containers that come, only 40 are exported back out. A staggering 60 out of every 100 containers continues to accumulate, slowing down the entire supply chain.
Ultimately, the COVID-19 pandemic has greatly affected both supply and demand, consequently rendering existing shipping container models and procedures useless in combating the container shortage. While the container shortage is causing large economic and global disruption, it is only temporary as an offset effect from the pandemic. The industry is ultimately hopeful that in gradual time it will improve as buying patterns begin to normalise.
As one of Australia’s leading suppliers in shipping containers, Tiger Containers is determined to stay up with industry trends and issues and help meet all of your container requirements. For more information about shipping container use, renting, or purchasing, contact the team today.