There are not enough shipping containers. Everyone in supply chain knows that. The watershed events of the COVID-19 pandemic have directly affected the supply chain, and now, the supply chain’s volatility has manifested in bottlenecks caused by the lack of shipping containers.
Around the world, the availability of cargo containers is at an all-time low—all while consumers are buying larger amounts of goods than ever. During the COVID-19 pandemic, people are buying differently and in larger quantities, causing unpredictable shifts in supply and demand forecasts. Fewer containers and more products to transport has created a high-profile challenge for supply chain organizations.
While everyone is talking about this shortage, no one is actually highlighting why it is happening. Multiple factors have compounded to create the container shortage, and in this article, we will discuss the real reasons that have directly caused the shortage.
As we’re all brutally aware, when the COVID-19 pandemic started, commercial flights came to a screeching halt. The tourism industry and commercial passenger planes were grounded. This decrease in commercial flights caused a reduction in available global freight capacity.
Air cargo has traditionally served as a critical step in the supply chain. Many higher-value items (such as iPhones) are normally delivered by air. But with such a dramatic decrease in commercial international flights, freight space on passenger aircraft (often called “belly cargo”) was no longer available, forcing companies to turn to shipping containers via sea vessels. This increased the overall demand for containers worldwide.
Because world trade saw such a dramatic, unprecedented reduction in the first two months of the pandemic, the normal flow of containers was disrupted. This resulted in not enough containers being in the right locations as world trade started to recover, which subsequently caused demand for shipping containers and shipping rates to skyrocket quickly.
Carriers also reduced the number of vessels at sea to help stabilize costs. Additionally, because world trade slowed down so much, carriers sent some of their active vessels in for refurbishment. On top of having fewer vessels available for voyages, some voyages were also interrupted because crews tested positive for COVID-19, causing unpredictable delays due to ships with positive cases not being allowed to dock at port.
On top of these unprecedented demand levels, it also takes months to build new containers. The rate of producing new containers was already down in 2019, and additionally fell dramatically in early 2020 due to the slowing of global trade. More old containers are being scrapped than new containers are being built, causing factory inventories to plummet.
As the world went into lockdown, world trade, economic movements and production slowed, and in some cases stopped altogether. Factories closed temporarily, causing large numbers of containers to be stopped at ports. When China resumed exports, the remaining containers in Asia were shipped to Europe and North America, but because carriers had reduced the number vessels were at seas, many empty containers were not picked up and returned to Asia.
For months, almost no containers moved from North America to Asia, primarily due to COVID-19 restrictions. When they did, at one point only four containers were sent back to Asia for every 10 containers that arrived in Europe and North America. The other six containers remained at the port.
Another factor that worsened congestion was that many countries closed their borders in response to the pandemic. Customs to become more complicated, and in some cases, customs work was partially suspended, resulting in more containers getting stuck at the wrong port.
Labor cuts and safety restrictions have compounded, also directly affecting the container shortage. Many ports suffered from a reduced workforce within the terminals and in supportive duties, including truck drivers. This labor shortage has created heavy vessel delays and missed sailings on top of volume limits.
And while there are fewer people working at the ports, the other factors that resulted in a huge spike in container demand have caused the volume of containers waiting to be unloaded to skyrocket. Containers began piling up because there was inadequate staffing, only further compounding the number of containers available.
With fewer people working at busier, more congested ports, dwell times have also increased exponentially. A Container xChange survey says containers are spending an average of 45 days empty at depots. In regions with low container availability (China and the U.S.), the average is comparably high, with 61 and 66 days, respectively.
Consumer behavior has also changed drastically during the COVID-19 pandemic, significantly affecting supply chain’s demand forecasting. Consumers spent $861.12 billion online with U.S. retailers in 2020—a 44% increase from 2019. Last year, online spending represented 21.3% of total retail sales—a 5.5% increase from 2019. Considering these changes and the unpredictable development of the virus, global trades saw many irregularities that increased cost to carriers.
The changed flow of goods was another cog in the container shortage wheel. In the second half of 2020, a trade boom surprised container producers when the pandemic again bumped about 25 million boxes of their normal routes. Since then, manufacturers have ramped up production, but they cannot heal the shortages that justified the past six months’ high freight rates.
It’s obvious the COVID-19 pandemic has greatly affected the supply chain. From lack of shipping containers to changes in demand forecasts, the logistics industry has been troubleshooting challenges since the beginning of the pandemic. The only long-term solution to these problems is to create a more resilient supply chain by becoming more flexible and agile through the use of new and advanced technologies.