Shipping containers are unloaded from a ship at Los Angeles, the final destination for many overbooked ships traveling from Asia via Europe, after passing through the Panama Canal.
PHOTO: LUCY NICHOLSON/REUTERS
In the Spanish port of Valencia, shipping containers are stacking up waiting to be taken across the Atlantic. Vessels from Asia that would normally carry the freight on to the U.S. are arriving fully laden, leaving no room for the goods in Spain.
Demand for shipping containers has leaped in the past year, and shortages are pushing prices higher. Consumers, stuck at home amid the pandemic and unable to spend money on traveling and restaurants, have spurred a surge in demand for goods, from clothes and electronics to treadmills and furniture.
At the start of the pandemic, shipping carriers reduced their service by skipping some of the stops on their routes–a practice known as blank sailing. When trade rebounded in the second half of 2020, delays, congestion in ports and lack of available containers at the right location, caused container tariffs to rise sharply. At the beginning of March, rates on the general east-west trade were quoted at three times the average per twenty-foot equivalent unit (TEU), and potentially even higher for specific ports and trades, according to ING.
After this increase, container tariffs eased somewhat, but the respite didn’t last long. On March 23, the Ever Given, one the world’s largest ships, operated by Taiwan-based Evergreen Group got stuck in the Suez Canal, blocking one of the world’s most economically important waterways. Hundreds of ships carrying billions of dollars worth of cargo were backed up.
“The blockade of the Suez canal meant that ships arrived late at European ports and in turn arrived late back in Asia making the container shortage much worse,” Robert Sierra, director of the Fitch Ratings’ Economics team, told The Wall Street Journal. He expects this shortage to last until the end of the year.
Following this incident, tariffs started to rise again. The latest quote available, on April 30, showed container tariffs between Shanghai and European ports some 4.5 times the average per TEU.
Rico Luman, senior sector economist at ING, doesn’t expect average tariffs to return anytime soon, as higher rates are included in term contracts and new vessel capacity will only be added later on. Tariffs are expected to remain well above long term averages for the rest of the year, he told The Wall Street Journal.
“With increased volumes meeting delays and stretched supply chains due to congestion, container shortage and reduced air freight capacity, rates will remain high,” Mr. Luman said.
A shortage of available containers meant rising European and U.S. demand for Asia-made goods couldn’t be met fast enough, economists at Fitch Ratings said. One consequence of the pandemic was that a significant number of empty containers were stranded in the wrong places, with shortages in Asia. The result has been a quadrupling in the cost of shipping goods from China to Europe since November.
China is the world’s biggest producer and the U.S. is the biggest consumer. Driven by double-digit growth in consumption, the U.S. economy grew by a 6.4% on-quarter in the first three months of the year. In this game for two between China and the U.S., Europe is struggling to keep up.
“The largest European container ports seemed to suffer the most from the pandemic,” Mr. Luman said. At the port in Hamburg, container throughput fell by 8% in 2020 compared with 2019, followed by a 3% drop in Rotterdam.
Containers leave China almost full and they can barely take on additional containers in their European stops. Once they arrive in the U.S., vessels have to wait for days in floating traffic jams until they can unload their goods. Anchored container ships need to wait an average of 6.8 days to enter the port of Los Angeles, the port data shows. Empty containers go directly back to China across the Pacific.
“Supply constraints are indeed weighing on the recovery,” Mr. Luman said. This can be seen in the German car industry, where shortages lead to production interruptions and supply can’t keep up with demand, he said.
But Mr. Sierra, from Fitch Ratings, said any impact on eurozone growth will be short lived, lasting only until blockages are sorted out.
Although eurozone manufacturing is booming and the eurozone manufacturing purchasing managers’ index reached a new record of 62.9 in April, supply constraints are also running at unprecedented levels. April saw average lead times for the delivery of inputs deteriorate to a degree unsurpassed in the survey’s history. A mismatch of supply and demand, allied with ongoing challenges in transportation networks, especially for sea freight, were widely reported as causal factors by manufacturers.
“The consequence of demand running ahead of supply and ongoing challenges in transportation networks is higher prices charged by manufacturers, which are rising at the fastest rate ever recorded,” Chris Williamson, chief business economist at IHS Markit, said.
Rising raw materials prices, supply-chain disruptions and surging shipping costs are raising expenses for producers, boosting near-term global inflationary pressures, but Oxford Economics says this producer price inflation will prove temporary.
“We project global producer price inflation will experience a spike this year, especially in emerging markets and the U.S., but it won’t persist,” Stephen Foreman, lead industry economist at Oxford economics, told The Wall Street Journal.
The economic research firm forecasts price pressures will begin to ease in the second half of 2021 as supply-side problems gradually resolve and easing lockdown restrictions reduce price pressure on in-demand sectors such as e-commerce and postal services.
For now, however, many containers in Valencia are left waiting in port and container prices continue to rise. The Valencia Containerised Freight Index, which reflects the cost of exporting containers from this port, recorded a double-digit increase in March, growing 17.48% on the previous month to stand at 1,791.96 points, the highest figure recorded since the start of the index.
Write to Maria Martinez at maria.martinez@wsj.com