When Did Container Shipping Get So Famous?
Container shipping is the lifeblood of the global consumer economy, and just like blood, it tends to remain under most people’s notice until something is very wrong. So when the cost of shipping stuff in containers makes the news, you know the global economy is going just a little bit crazy.
The financial media have been all over the craziness, which seems to have affected the crucial container shipping routes from Asia to the US Pacific coast, and Asia to Northern Europe the most. Per the FT, prices for standard containers rose from $1500 to $4000 per container in the former from summer to autumn 2020, and have skyrocketed from $2000 to $9000 in the latter over the three months from Nov 2020 to Jan this year*.
Like in copper, shipping lines also cut capacity, in their case by idling ships and/or simply not sailing them. This allowed them to keep prices up as global trade volumes dropped off a cliff in March and April of 2020. The consequence of this was containers being left in the Western hemisphere (again per the FT), just as economies there began to reopen, driving demand for Chinese exports.
Exacerbating this shortage is the fact that global shipping lines were already actively reducing supply for years, in response to massive global overcapacity through mergers and acquisitions as well as alliances. Put another way:
Supply cuts into a global pandemic…
Followed by more supply cuts because of worldwide economic shutdowns brought about by the aforementioned pandemic…
Economies all over the world open again 2 months later…
Oh, and most of the twice reduced supply is stranded in the wrong half of the planet instead of being in China where they needed to be…
What else are container shipping costs supposed to do other than go absolutely bonkers?!
All in all, higher prices from yet another supply shock combined with demand surging from depressed lockdown levels due to reopening. Nothing to do with QE and not a portent for massive future growth. Just an unsexy market enjoying being sexy for once.
*It is very important to note that these are prices in the spot market. Most major customers of the shipping lines pay rates agreed on a multi year contractual basis.
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