Suddenly there is a glut of empty containers. And prices for empty containers have fallen, in some cases by almost 50%. That’s because the containers are jammed up and not going back to China, due to Chinese COVID shutdowns and the Ukraine crisis.
Now the cost of a container in the US is below what it costs to buy a new one in China. I’m afraid it isn’t low enough for ocean carriers to be motivated to spend a voyage on relocating them. I think they will continue to build up in the US.
Others are discovering that they can dump steel by making it into containers. While the Vietnamese steelmaker Hoa Phat mentioned in the article won’t be a large percentage of the demand, it’s significant.
And since more goods are now being exported from Vietnam compared to before the Chinese lockdowns, supplying new containers on the spot may be a better option than moving them from the US and other places.
This means there will be a glut of containers in importing countries. The only option may be to scrap them when they arrive. Ocean carriers and shippers will prefer to buy new containers at the exporting site rather than shift the old empty ones back for more cargo, at present fuel prices and increasing pollution and crew charges.
It’s a real waste to scrap the containers if they are used only once. While steel is recyclable, it’s a torturous road, and we aren’t set up to do it at scale. And a tremendous waste of effort.
All are examples of exogenous charges, as the economists say. They are not factored into the original price of shipping the goods, so they aren’t paid by the shipper. They also aren’t paid by the carrier. They instead erode the general welfare of the communities who have to deal with the empties. It’s a classic scenario in sustainability.
I think this time around all the good arguments are on the side of the shippers. Since moving to various forms of precision scheduled railroading (PSR), railroads have been passing longer delays on to customers. They don’t have the cover of good servi8ce right now, and I bet they lose on this one.
It seems clear that the major rails have leaned out their systems so much that they can’t respond to anyone’s exceptional needs. A shift to reciprocal shipping for a larger group of customers would help that out, and foster more price competition as well as simple competition for cargoes.
Rails can’t argue that they are making investments in new lines to serve more customers. What investment there is in rail infrastructure is on maintenance, and on expanding trunk and yard lines where great congestion has occurred. It’s almost impossible for a new business to get a rail spur, let alone service at a spur. Rails don’t see themselves providing this kind of service anymore, though they continue to support those who have it. Letting other rails use the rail lines via reciprocal switching would help the shippers a lot. It would induce competition where there isn’t any now.
The rails have lots of ways to react to new rules. All the schemes contemplated would allow fair compensation for the use by other lines. And I bet there will be some limitations in who can negotiate shipper reciprocal switching rights. So big rails will continue to have enough leverage to make it a business option.
Big rails need to staff up and get more rolling stock anyway. They have cut too close to the bone to provide good service today, and everyone from ag shippers to container shippers knows it. they should make the system and infrastructure work for the customers.
Supply Chain and Logistics 