Unpacked: China's exports are impacted by international air pollution from delivery containers
© Reuters. Cargo ships sail in Hong Kong
By Stella Qiu, Shivani Singh and Roslan Khasawneh
BEIJING / SINGAPORE (Reuters) – China's world's best economic recovery from the coronavirus pandemic is being held back by a global shortage of shipping containers, pushing freight costs to record highs and preventing manufacturers from fulfilling rapidly recovering global goods orders.
Exports from China rose 21% yoy in November as the country's giant industrial engine produced mountains of gadgets, toys, clothing, personal protective equipment and other items currently in high demand worldwide.
Due to China's unilateral trade balance – exporting three containers for every recently imported – and delays in returning containers to China due to the overseas pandemic, a serious shortage is now beginning to curb export flows. About 60% of the world's goods move by container, and there are nearly 180 million containers worldwide, according to United Nations trade data.
"We have so many orders but we just can't ship things," said Charles Xu, a mirror salesman at Yiwu's Zhejiang Province Export Manufacturing Center, US retailers like Walmart (NYSE 🙂 and Home Depot (NYSE :).
"Boxes are piling up in our factory and we're running out of space. It's just hard to book containers and everyone is bidding for them with high prices," he said.
According to the China Container Industry Association (CCIA), average container turnaround times have increased from 60 days previously to 100 days as COVID-19-related handling capacities have been cut in Europe and the US. This only exacerbated the shortage. US importers reported problems with shipping delays back in November.
The creation of much of the world's international passenger air fleet, which often also carries cargo, has also increased the demand for ocean freight.
With the outlook changing little and changing the dynamics of trade and freight ahead of the global launch of coronavirus vaccines, shipping costs have increased as a result. The cost to charter a 40-foot container from China to the U.S. east coast hit a record $ 4,928 this week, up 85% since June 1. This is evident from Freightos data in Refinitiv Eikon.
The shipping costs for GRAFIK containers are rising to record highs: https://fingfx.thomsonreuters.com/gfx/ce/nmopabkkwva/FreightosGlobalContainerRates.png
The rates to Europe rose by 142% over the same period and by 103% to the Mediterranean via the Suez Canal.
The prices for some short-haul and margin routes have increased even further. The Ningbo Containerized Freight Index from China to Singapore / Malaysia rose by almost 300% between early October and early December when a bidding war for shipping space broke out among Southeast Asian exporters.
Shipping costs for GRAFIK containers for China: https://fingfx.thomsonreuters.com/gfx/ce/yzdpxjddapx/NCFIContainerRatessinceOct.png
Container manufacturers have added shifts and increased capacity to keep up with demand, but they are still insufficient. Monthly production in China, which accounts for 96% of global production, hit a five-year high of 300,000 units in September, according to CCIA data.
Production has remained high since then, but the shortage of steel, floor wood and skilled welders is likely to limit further profits, CCIA said. If the containers are not precisely matched to exact specifications and are securely reinforced, there is a risk that they could be split open when loading on board ships.
Distorted trade flows in and out of hypermarkets, which are importing more and exporting less than normal due to the pandemic, have also led to a record build-up for containers outside of China.
The Port of Los Angeles, the largest container port in the United States, imported 3.5 containers for every export it exported in October and shipped a record 326,000 empty containers that month, according to shipping company BIMCO.
Due to the overall reduction in overall fulfillment rates, suppliers across Asia continue to struggle to secure passage for their goods.
Some private Chinese firms have recognized an opportunity to win and have stocked storage containers to be made available to the winning bidder.
"Now there is a mafia. They pay extra to get access to containers from private shipyards, not mail-order yards," said a Yiwu-based supplier of housewares, toys and stationery.
"Each container can cost 3,000, which is nearly $ 500, and the freight is already three times more than normal. Everyone makes money, but we don't make money."
"At the moment it takes two to four weeks to wait for containers. I still don't know whether I will have containers or not," said the seller, who would not reveal his name as he was not authorized to speak to the media.
Some complain that they cannot buy into ships, whatever the price.
"Sometimes carriers won't book shipping space even if you pay twice for it," said a carrier for Southwest Logistics Group in Ningbo.
"In the past, for example, shipping a container to South America didn't cost more than $ 3,000, and that's a sky high price. But even if you pay $ 6,000, shipping companies can't guarantee your space." said the officer, who refused to be named because he is not authorized to speak to the media.
As a result, shipping associations in South Korea, Malaysia, and elsewhere have asked for government assistance to offset rising freight costs while others are simply choosing to sell more goods at home.
Still, others have no choice but to pay.
GRAPHIC China exports versus imports: https://fingfx.thomsonreuters.com/gfx/ce/dgkplqwwlvb/ChinaExportsvsImports.png
"Sometimes it's just an endless wait before you run out of patience and ask them how much you want," said Hill Xiao, who runs an export business in south China's Guangdong Province that helps factories sell clothes and toys overseas .
"If you can't get a container, you can't ship things and you can't get the money. That really hurts our cash flows," Hill said.
Industry watchers expect the container tightness to remain in place until coronavirus vaccines become widespread and more global travel resumes.
"We are seeing unusually high demand for goods around the world, which is likely to cool down over the course of 2021 due to the (expected) service-related recovery, particularly in Western economies," said Frederic Neumann, co-head of Asian Economics Research at HSBC.
"At the same time, some of the logistical bottlenecks, namely the lack of passenger planes that can carry cargo, should also ease after the introduction of a vaccine."