Shipping Container Shortage Problem 2011

Posted on Thu, Mar 10, 2011 @ 06:43 PM

delicious

Ocean carriers face a shortage of containers in the coming months as the demand for cargo exceeds the existing equipment capabilities of most or all Carriers. I guess when they all ordered vessels a few years ago no one had the foresight to also order production of containers. That is like buying an iPod, but never purchasing a set of earphones. Shipping Container

It is reported that the box to vessel capacity ratio will drop to 1.99 from 2.03 which is the lowest on record. In the past 10 years worldwide container inventory only increased about 7%, while vessel production increased about 11%.

Although part of that reason was a huge stoppage of everything during the recent “great” recession, as Carriers refurbished or “cull” old boxes to save on cost, and will undoubtedly do the same this year. Another reason carriers stopped making new boxes is because several focused on specialty equipment and reefer boxes.

Right now the industry is looking at a total fleet growth of about 9% this year. A total of 287 ships will be unveiled this year (1.42 million TEUS).

The markets that will be hit the hardest will be export markets in the U.S. and Europe as the equipment is needed in Asia. So this will result in delays similar to that of space issues last year in the TP Trade.

No doubt Carriers will use this as a reason, albeit legitimate, to raise freight rates again as they all deal with the over capacity issue of vessels compared the demand in freight this year. Currently there is a lot of downward pressure on eastbound freight rates from Asia. However, as we speak, most carriers are rushing production of new boxes, led my Maersk.

They have also basically put the brakes on the scrapping of old boxes. Normally all carries combined scrap over 200,000 TEUS worth of old containers every year. Now there is expected over 700,000 TEUS worth of new equipment being built this year.

So the problem is primarily for this year, and will be felt most during the peak months between June and Sep. The biggest problem for the carriers is the rising cost in this production, which they will find a way to pass on to the shippers no doubt.

Key Takeaway - Shipping Container Shortage

Key Takeaway - Buy stock in container manufacturing companies. If you are a shipper, secure your relationships with people who can gurantee equipment this year, so you don't end up like last year.

If you are looking for a reliable shipper with equipment certainty:

Devin Burke

devin@universalcargo.com

Tags: shipping container, container shortage, stock tips

Comments

In 2009 only 300,000 containers were ordered and built. This caused Chinese manufacturers to lay off people, who went to other industries. As 2010 took shape, leasing companies, on behlaf of carreris, ordered nearly 2.5 Million (normal factory build was 3.1 Million in 2008) but because the factories had to train new people (welders) they could only produce about 1.8 Million, They are on pace to make over 3 Million this year and it is leasing companies who are ordering them,carriers saving capital. In the past the major carriers have been 70% owned and 30% leased in terms of fleet split; right now they are on their way to ordering from leasing companies so as to create a 40/60 split (60% leased).

So containers are being built but more by leasing companies than carriers due to the financial conditions.

Posted @ Friday, March 11, 2011 2:38 PM by Gary Ferrulli

Very interesting point Gary. This year will be especially big for container leasing and mfg companies as most Carriers are far behind in inventory so the supply will have to keep up with demand, thus rising the costs to purchase and no doubt leasing.

Carriers have no choice to lease, but they are all stocking up again in both new containers, new chassis and refurbishing old ones to match with the 287 new ships being delivered this year.

Posted @ Tuesday, March 15, 2011 4:19 PM by devin

Thanks for sharing.

What will be the likelihood that last year shortage will happen this year again?

Does it mean that the carriers will be able to impose higher surcharge this year as compared to last year because box to vessel capacity ratio will drop to 1.99 from 2.03?

Taking also account that US consumer market is recovering at a faster pace and the current inventory level for auto parts are consider low now.

Posted @ Sunday, March 20, 2011 12:13 PM by Chris

Unlikely that there will be the kind of shortage that there was last year as manufacturers are at or near capacity while last year at this time they were hiring and training people. As noted earlier, expect that manufacturing will exceed 3 Million units this year, a normal year.

On surcharges, etc, I don't know what trade you are in but rates globally are falling, not rising. There are a coule of reasons; one, some carriers are chasing market share, and two, there is expected to be an excess of capacity so supply/demand will favor shippers.

Posted @ Sunday, March 20, 2011 12:33 PM by Gary Ferrulli

Gary, thanks for sharing.

Are you from the industry since you know so much about containers manufacturing?

You are right on the overcapacity at current, but another part of the reasons could be the falling rate due to the off-peak season.

According to what I know, Singamas, the container manufacturer are building 2 more plants to cater for the industry needs and it will only be ready by this year.

Alphaliner and even APL's president is warning about the container shortage unless they are wrong?

Appreciate if you could share more.

Devin, what do you think?

Posted @ Sunday, March 20, 2011 1:12 PM by Chris

I've been in the business since 1972, spent a few years as a Vice President of Sea-Land Service and some time in Copenhagen for AP Moller-Maersk. I consult now to mostly shippers but do a lot of work in and around China as that is the logistics hot spot and I've been there over 40 times. I am also pretty close with a particular leasing company President and we talk about the industry.

The carriers are trying to convince the world, inclusing themselves, they they don;t have a supply/demand problem in order to try and keep rates up - but they are their own worst enemies as they lower rates weekly on the major east/west trades.

Is there a shortage of containers? maybe, but nothing like last year.

Posted @ Sunday, March 20, 2011 2:02 PM by Gary Ferrulli

There is alot of downward pressure on the ocean freight rates for imports right now largely due to the slow season. However with so many new vessels coming in, especially for MSC which will bring in 24 new vessels I was told, they are getting very aggressive in pricing going both ways. In L.A. they have an over abundance of equipment that needs to get back to China, thus affecting their westbound pricing as well. As Gary has mentioned there shouldnt be anywhere near the same equipment and chassis shortage next year because of all that is on order right now. The big questions to me are, will the economy sustain all of this over capacity this year, and will carriers take vessels out of circulation again this year to control the market like they did end of '09.

From an NVO's perspective I do see this year as a great opportunity to gain market share from the carriers as many Shippers are upset with the Carriers for their poor service and high rates last year.

Posted @ Sunday, March 20, 2011 3:01 PM by devin

Gary

BTW, I read what you were quoted in the latest Aamercian Shipper in the article about NVO's taking a bigger market share of FCL business. Interesting that you would point out that Carriers do not realize how much money they are leaving on the table by helping NVO's gain market share. I have always thought that Carriers undervalue what NVO's bring to the industry in FCL business. Although by in large we are mostly non asset based, and "risk no billions", and are a "competitor", we are also a major sales arm of these carriers that need to fill their vessels, especially in the lean seasons. I can speak for my company and the partners in Asia i am associated with, that we not only do not attack a particular Carrier's accounts if we have a service contract with them, but we also have to provide the accounts name to hem befoe they even file a rate for them in our contract. In theory it is a good working relationship, and as you know most Carriers favor certain NVO's and Vice Versa, what hapens next should be a free market and may the best NVO/Carrier win, However often times these same Carriers turn around and shoot themselves in the foot by attacking the same shipper that is already using them by offering the same rate on a 50 teu contract that the NVO had to get with a 10,000 teu contract. They end up being their own worst enemy.

Posted @ Sunday, March 20, 2011 3:39 PM by DEVIN

Devin

On supply/demand, this time last year there were 500+ ships at anchor, this year 110 - enough said.

On NVO's, I don't blame them, they are smart in that they allow others to invest heavily and then they use the assets. That some asset based carriers allow it is questionable from a pure financial perspective. Note in 2009 asset based carriers lost $17. Billion while the NVO's combined made about $8. Billion.

No doubt that NVO's act as a sales arm of several carriers, and that puts pressure on the other carriers to deal with them as a "customer".

The NVO's made a lot of progress in 2010 as carriers couldn't handle cargo offered, many turned to NVO's for their space and equipment and got it.

As long as you have three or four carriers, two or three of them in the top 10, who cater to NVO's, that is dedicate 50% or more of the vessel to NVO's and price accordingly so that the NVO's have nice margins, NVO's will thrive. Best business model around.

Are the carriers smart or dumb? You said that they are their own worst enemies, I won't argue on that point.

My point in the American Shipper, which was slightly misquoted, was that normally those with the biggest risk in terms of capital investment, should do everthing to maximize profits and protect that investment. Ocean carriers have not shown either the desire or ability to do that. Go back 20 years when conferences were in full bloom; a license to steal, print money, yet they didn't. The ocean floors are strewn with the skeltons of carriers from those days who had an extrodinary opportunity to make vasts amounts of money, yet returns were generally under 5% and again there are scores of them who went out of business. You are right, they are there own worst enemies.

Posted @ Sunday, March 20, 2011 4:27 PM by Gary Ferrulli

Gary

All good observations. It is a mystery how most of these carriers have not been able to turn a profit for more years than they do apparently. One is tempted to invest in them as they should be making tons of cash in a world that is increasingly flat as Thomas Friedman called it, and trade is largely dependant on ocean freight. My guess is the ones who are able to utilize the advances in cost saving technology and by reducing fuel costs,and lowering the need for union labor will come out ahead. But they will always need their "sales arm".

Posted @ Sunday, March 20, 2011 6:16 PM by devin

Great insight gentlemen.

Looks like this year will be a flat year for carriers, but another great year for NVOs, container leasing companies and manufacturers.

Posted @ Monday, March 21, 2011 11:15 AM by Chris

YesI agree, you want to be able to talk on the forum of the internet where everybody gathers.

Posted @ Monday, April 11, 2011 10:04 AM by devin

On 18 Apr 2011, Singamas's CEO had warned of shortage of containers due to slow shipping by carriers and destruction of containers caused by Japan tsunami.

It will be interesting to note whether previous shortage will repeat itself?

Another fruitful year for container manufacturers and carriers?

Posted @ Tuesday, April 19, 2011 11:25 AM by Chris

Container manufacturers will definitely come up this year. Been suggested by a few forces to invest in this kind of stock.

Posted @ Tuesday, April 19, 2011 11:29 AM by Raymond Rau

It should definitely be a fruitful year for container mfg companies, as they are in high demand. But then that will end, as no one knows if the economy will sustain itself enough to create demand for cargo throughout this year. With so much new capacity together with the volitility of the stock market, the debt crisis, fuel prices, the threat of another housing collapse, etc... I am becoming less and less optimistic regarding the volume of cargo being shipped in the Pacific Rim. One thing is for sure , this will not be a fruitful year for Carriers. There is already rumors of some carriers in trouble again.

Posted @ Tuesday, April 19, 2011 11:56 AM by devin

The container imbalance has stabilised since July, as the production of boxes took off again while the scrapping of older units was virtually halted.
The fall in demand during the fourth quarter, following the end of the summer peak season, has also helped to bring back the balance.
While carriers look better prepared for the forthcoming summer season, the surge in new box prices could dampen additional orders for new containers.

Posted @ Wednesday, April 20, 2011 5:15 AM by Freight Forwarder Toronto

Interesting, however we are getting reports from the Carriers that we are to expect container and equipment shortages this summer, which could result in surcharges

Posted @ Wednesday, April 20, 2011 9:51 AM by devin

Interesting, looks like there are different views on the shortage of containers.

Gary, if you are around, would like to hear from you on your opinion.

Devin, I am only aware that Horizon Lines is stinking, but in contrast OOCL is doing very well for their first quarter. 17.2% increase in their revenue compared to first quarter last year.

Posted @ Wednesday, April 20, 2011 11:28 AM by Chris

Chris

Well, I had thought that I had already worn out my welcome on this subject.

We seem to have two different subjects here now - the initial discussion on the equipment availability issue, and now rate levels and carriers being in trouble.

On the equipment issue, there may be some tightening of equipment availability at times in the year that is the NORM. As noted, manufacturers are almost up to speed on production, someone mentioned that carriers were keeping older equipment longer due to a possible shortage, and likely a cost issue also, and of course whatever affect the Japanese sunami had.

On carriers, TCC is alread shut down after a year but new entrants are coming in as vessel owners want them working and offer attractive rates to do that, and some people can't resist becoming "an Ocean Carrier". The Horizon situation is quite complex having a lot more to do with other issues than trade in the US Foreign Commerce. OOCL's first quarter results were good - compared to their first quarter 2010, we'll see how the year goes. Right now, based on rate levels in the Asia/Europe trade and what apparently is happening in the Trans Pacific, this may be a loosing year for the container shipping industry. Lose $17. Billion in 2009, make about that amount in 2010, now back to losing who knows how much.

What a great business to be in!

Posted @ Wednesday, April 20, 2011 11:52 AM by Gary Ferrulli

i agree with Gary's asessment. If OOCL had a great 1st quarter, it would be interesting to study what they did to set them apart. I only am going by what we heard at the TPM, where the 2nd quarter was looking like a losing quarter all around. However this is slow season, so where is the surprise.

As far as going forward, I would think that the customers will all feel the equipment shortage pinch with delays mostly, not so much in added costs, but if the demand drops that shouldn't be much of an issue anyways.

The real question is if the economy can sustain itself with all of the volitility in the markets now.

Posted @ Wednesday, April 20, 2011 12:04 PM by devin

Gary and Devin, I couldn't agreed more to the points you gentleman had made.

It is indeed a great business to be in! There are plentiful of money on the table to be made, but carriers are their own worse enemy...

Posted @ Wednesday, April 20, 2011 12:21 PM by Chris

Well at least for now bookings are picking up, probably because everybody is trying to avoid he GRI, but hopefully demand is up all around, will see in a few weeks

Posted @ Wednesday, April 20, 2011 12:42 PM by DEVIN

Shipping containers in alberta and select other markets seem to be available; hopefully the container shortage will subside globally.

Posted @ Monday, April 25, 2011 2:49 AM by jesse carolla

Great discussion. I was doing some research on the container shortage and came across this with Gary's usual valuable input.

Carrier operting margin amongst the top 5 carriers (who make the data available) was reported by Alphaliner to be at -1% in the first quarter with Maersk leading at 7% and CSAV behind at -13.

OOCL has consistantly been a leader in profitability despite their relatively small size. They are industry leaders in systems.

Posted @ Sunday, June 05, 2011 10:15 PM by John Doble

We are now looking at Container volume definitely picking up from Asia to the EC all water ports right now and expect the PSS to go through mid or late July if not sooner. However the West Coast is hurting. Just too many carriers, rates are dropping while they are still trying to pathetically announce a PSS in July, which is now looking like will happen if at all in Aug.

Carriers will make their money on the East Coast once again.

Posted @ Monday, June 06, 2011 1:33 AM by devin

I am wondering which major carriers balance sheet will still be in the black this year...

Probably AP Moller-Maersk, OOCL,
APL (maybe)....

Posted @ Monday, June 06, 2011 11:19 AM by Chris

i am thinking Maersk like in '09 will be the biggest loser

Posted @ Monday, June 06, 2011 11:27 AM by devin

Look at AP Moller-Maersk, the number of hugh ships and its volumes they are bringing into the market for the next few years, they are too aggressive.

Bad for carriers, probably good for shippers.

Posted @ Monday, June 06, 2011 11:33 AM by Chris

Most carriers have that problem, and Maersk being the biggest and most invested, is the most exposed. However I believe the summer into the fall months will be a good volume and will help alleviate this pressure. But end of year, Maersk will be the one will some sizable losses among others. Not the ones that pinch every penny, like MSC, they will probably make money this year. OOCL seems to also have a good handle on their operation.

Posted @ Monday, June 06, 2011 11:51 AM by devin

You might want to read the 1st quarter reports fr the carriers who reported closely. Or read my article in the June 13 edition of the JOC.

Posted @ Monday, June 06, 2011 6:32 PM by Gary Ferrulli

You have a few helpful ideas! I will keep these in my mind. Thanks for sharing this Blog...

Posted @ Friday, June 17, 2011 12:16 AM by Shipping Container

Nothing you said is unreasonable!

Posted @ Tuesday, December 27, 2011 11:39 PM by UGGs

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Shipping Container Shortage Problem 2011

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