Disruption Report #23: “The Worst Shipping Disruption Since World War II”

The Upward Trend in Container Costs

It seems like only yesterday, well, 2019, when a company could book a 40-foot container for as little as $2400. Today, that same container costs more than $12,000 (and that’s the Market Price, more on that below). That’s a five-fold increase, and it appears that more is on the way. Those with whom I have spoken anticipate that the price will increase to $16,000 by the end of the year.

Don’t expect container prices to decline in 2022. Those with whom I speak anticipate that it will be 2023 before prices begin to fall. There is also anticipation that due to a great deal of shipbuilding and container construction taking place now, there will be a glut of containers and
ships in 2024 which should send prices back down to reasonable (whatever reasonable means in two years and a half years).

Market vs. Premium Priced Container Prices and the Impact on Which Containers Get Onboard

When procuring a container, a company can choose to pay either the Market Price or the Premium Price. It’s a bit like the difference between economy and first-class plane tickets. Like buying a first-class plane ticket, the price difference can be significant. The same goes for a Premium Price container which is currently costing an additional $4,000.

A first-class passenger ticket on a plane gets you early boarding, a more comfortable seat, better food, and free booze. Premium Price on a container ship gets you first-class service as well, but in this case, it means your container is first-on and first-off, a major time-saver.

Before the pandemic, the resulting time saving was in days. Now, due to short supply of container ships, it can mean weeks. The reason: When it comes to loading a container ship, if there is no room left, Market Price containers don’t get loaded.

Worst Shipping Disruption Since World War II

“I am extremely concerned now about the economic impact caused by the current situation. This could be the first time the public sees the impact of maritime shipping disruption since World War II.”

Carl Bentzel, Commissioner of the Federal Maritime Commission

There are several reasons for the current tie-ups in the world’s supply chain, the Pandemic being the largest one. But this quote from a Wall Street Journal article by David J. Lynch made me sit up:

Nine cargo carriers, organized in three shipping alliances, control more than 80 percent of the global market for oceangoing vessels.

According to the article, eight out of twenty shipping lines went out of business in the last eight years. Another nine joined each other in three alliances. Though the lack of competition didn’t start the problems, it certainly seems to have exacerbated it.

Governments may well step in and try to “fix” things, but the question is by who, in how long, and in what manner? Don’t expect any easy solutions any time soon.

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