Container lessor Textainer does not see a return to a balance in the supply and demand of boxes before mid-February next year, the company tells ShippingWatch. Competitor Triton agrees that shortage will prevail until after Chinese New Year 2021.

BY TOMAS KRISTIANSEN

Published: 19.10.20 at 11:53

Shippers will have to remain patient and probably also pay extra for ocean transportation of their goods for at least another five or six months.

The rally on the container market has taken rates to record levels and the development only seems to continue, above all on the Trans-Pacific services from Asia to Long Beach and Los Angeles

A cocktail of parameters have pushed up the prices since July, tilting the supply and demand balance heavily and ultimately leaving shippers with costly transportation, too few sailings, inadequate equipment and a very low reliability.

A critical factor is the shortage of containers, which has urged Maersk and Hapag-Lloyd to inform their customers that it may take a while before a balance is restored.

One of the major container lessors, San Fransisco-based Textainer, believes the shortage will probably last another four months, until February next year, Senior VP Marketing Philippe Wendling tells ShippingWatch.

No real balance before February

"Our projection is that a balance will not be regained until mid-February after Chinese New Year. Production cannot be lifted sufficiently to compensate such a sudden surge in demand, and you have to take into account that we are heading towards a normal market," he argues.

The maximum monthly production by Chinese box producers is around 300.000 teu, and factories are running at full speed already.

However, the gap is deep for a variety of reasons. First, 2019 was a year with an annual production of 2.5 million teu, which may sound like a lot but it actually only covers slightly more than the amount of boxes that are lost or scrapped or old containers sold for storage or other purposes. It should be noted that more than four million teu left the factories the year before, which partly explains the low production in 2019.

During the first half of 2020, shipping lines ordered few containers and postponed contracts because they believed that ocean transportation demand would decrease on the back of the Covid-19 outbreak, and adding to that, many containers arrived from Asia to Europe and the US after Chinese New Year and stayed there. Bottom line was that when the demand for transport recovered in July, the global fleet of containers was rather low and not positioned where it should be.

Severe congestions in ports

55 percent of all containers on board the global fleet of liner vessels are produced for lessors like Textainer and Triton, who lease the equipment to their customers, the shipping lines.

In that regard, the forecasts by the lessors give a clear hint as to where the market is heading. The remaining 45 percent is purchased directly from the manufacturers by the carriers.

Wendling explains that the rally is pushing up prices of boxes from the producers, who normally charge around USD 2,000 per teu, and it is thus making the lessors' contracts more costly as well.

"That is the logic of supply and demand. Few people could have foreseen this development which occurs due to a number of factors. Right now, severe congestions in LA and LB aggravate the challenge," he argues.

During an investor presentation in September, Triton presented views that a are quite similar to what Textainer foresees. The presentation was hosted by consultants Keefe, Bruyette & Woods who issued a report in which it is concluded that:

"Triton expects to see sustained heightened activity through the fourth quarter, while demand could remain strong through the Chinese New Year [in mid-February 2021]."

The shortage of equipment together with port congestions, another obstacle to reposition boxes according to market demand, has led shippers and freight forwarders to criticize the service they are offered by the carriers.

Shortage of equipment

Dominique von Orelli, global head of ocean freight at DHL Global Forwarding, pointed to the problem, which the logistics major is experiencing on par with several other freight forwarders in the market.

"Some ocean carriers are currently taking out container equipment from the Asia-Europe trade lane as well as the intra-Asia trade lanes in order to deploy them in higher-yield trade lanes such as intra-Pacific and Latin America to a certain extend," he said.

"Based on this we are observing equipment shortage on the Asia-Europe trade lane and delays in some areas."

During the week leading up to Golden Week in China, the SCFI index (Shanghai Containerized Freight Index) reported average rates between Shanghai and Los Angeles to be USD 3,863 per feu, up USD 7 from the week before. Average spot rates between Shanghai and Northern Europe came to USD 2,336 per feu, an 8.2 percent increase.