China’s shipping-container costs hit all-time highs, and shortage will further push up prices in coming months

Prices of shipping containers are on course to keep rising for the rest of the year amid strong global trade demand, according to analysts.

As of last week, the Drewry World Container Index, which provides weekly assessments of container freight rates, surged for the 19th consecutive week to US$9,817.72 per 40-foot container – a 351 percent increase versus the same week in 2020.

And the rising costs will be further exacerbated in the coming weeks by the recent temporary 

closure of a key terminal

 at China’s Ningbo-Zhoushan Port, the world’s biggest port in terms of cargo tonnage, according to Container xChange, an online platform for the leasing and trading of shipping containers.

Locked down on August 11 after a port worker tested positive for the Delta variant of the coronavirus, the Ningbo-Zhoushan terminal did not resume normal operations until August 25.

Container xChange projected that the Ningbo-Zhoushan situation, as well as productivity declines at ports in Vietnam due to recent outbreaks in the country, will further reduce container availability and push up prices in the South China Sea region in the near term.

 

The analysis is also based on observations made at Yantian Port in Shenzhen in southern China. A 

three-week lockdown

 therefrom May to June is still disrupting container availability and pushing up prices.

 

“We saw a real and measurable spike in container prices, and a major drop in container availability as measured by our Container Availability Index, when terminals at Yantian saw operations disrupted through most of June,” said Christian Roeloffs, co-founder of Container xChange.

As of last week, the average container prices at Yantian Port had surged almost 180 percent since June, to US$15,336, Container xChange’s figures showed.

“Early indicators suggest we are likely to see the same [prolonged] impact in Vietnam and at Ningbo,” Roeloffs said.

 

The closure of Meishan terminal and the surrounding areas has already caused a spike in container prices at Ningbo Port, where the average price for August reached US$5,731 last week, making containers at the port more expensive than at nearby Shanghai Port, as well as at Qingdao Port, another major port for foreign trade in northern China, Container xChange said.

 

The future trend of container prices looks to be determined by whether there are more port lockdowns, according to Johannes Schlingmeier, also a co-founder of Container xChange.

“Even if there are no additional closures, container prices will likely rise on lower availability in the coming weeks due to the lag between liner schedule disruption and container availability and pricing,” he said.

 

Due to the supply chain and logistics disruptions caused by the coronavirus pandemic, the imbalance of container distribution has been exacerbated in the past year between different markets. In major exporting countries in Asia, exporters are scrambling to find available containers to load goods, while in the United States, Europe, and Australia, empty containers are piling up at ports, delaying their return.

To combat the container shortage, Chinese authorities have coordinated with domestic container manufacturers to increase output, said Sun Wenjian, spokesman of the transport ministry during a press conference in July.

 

As the world’s largest container-producing country, China produces more than 96 per cent of the world’s dry cargo containers and 100 per cent of temperature-controlled refrigerated – or “reefer” – containers, according to Drewry’s data.

In the first six months of this year, China’s output of dry boxes climbed 235 per cent, year on year, to 3 million 20-foot equivalent units – the standard measure for freight container volume, known as TEU – while reefer-container production more than doubled to 260,000 TEU, according to a report published by Drewry in early August.

 

Capitalising on the high demand and surging prices, China International Marine Containers Group (CIMC), a major container manufacturer, reported a net profit of 4.39 billion yuan (US$678 million) in its container-manufacturing business in the first half of this year. This marked a massive 1,739 percent rise compared with the same period last year.

The company produced more than 1.1 million dry containers in the year’s first half, which was a 219.7 percent year-on-year growth.

 

It also manufactured 94,500 TEU of reefer containers in the first six months, marking a 76.3 percent year-on-year growth.

CIMC said the continued strong demand for containers, combined with the rising prices of raw materials, resulted in a substantial spike in the prices of new containers.

Prices of dry-freight shipping containers have doubled over the past year to reach historic highs, according to Drewry’s report.

At the higher production rates, however, industry insiders have expressed concerns about an oversupply of containers once the pandemic is over.

Drewry’s report said tight equipment availability is likely to persist at least into 2022.

“Pricing has been driven by soaring demand for newbuild containers as shipping lines and lessors have been seeking to rebuild fleets in the face of chronic equipment availability due to widening disruption across the container supply chain,” said John Fossey, head of container equipment and leasing research at Drewry.

“But also, increased input costs, particularly for [weathered] steel and flooring materials, have also played a part. We expect dry-box prices to peak in the third quarter and to soften thereafter, easing further over subsequent years as trade normalizes.”

But prices of specialist containers – including reefer containers and tank containers used to ship liquids, gases, and powders – are expected to continue rising, with prices moderating over the next few years.

“We expect reefer-container equipment availability to remain an issue for certain trades during their peak seasons, as the global fleet is not expected to keep pace with rising cargo demand, despite record output of newbuild containers,” said Philip Gray, head of reefer-shipping research at Drewry.