It is interesting to hear about changes in regional supply chains. The Ukraine war provides a chance to see what disruption occurred and how it is impacting routes to move cargo in the area of the Black Sea. This article covers the effects of the blockade of Ukranian ports.
Naturally costs have changed, and so have equipment imbalances.
Finally, the markets for freight into and out of the area have changed a lot. Many shippers and carriers have been actively looking for alternatives, and have needed to create some new ones.
And sanctions imposed by the EU and US have forced other changes.
By Daniil Melnychenko data analyst at Informall BG 26/07/2022
There are now too many containers in the world. And they are cluttering up the ports and yards we need to move containers through. And they cause detention and demurrage charges, because lines won’t move them out of ports.
The global container pool is around 50 million TEU right now. According to Drewry, that is an excess of 6 million TEU. However, Drewry is not too concerned about the excess at present, feeling they can be absorbed if trade picks up. Interestingly, Drewry seems to think that the excess will be absorbed by ‘slower sailing’!
As economics tells us to expect, the price of second-hand containers is falling. However, some carriers, such as Evergreen, continue to order more. Most containers are built in China these days. Three Chinese firms, with state connections, are the primary sources. The problem is that empty used containers cost a lot to return to exporting destinations. They displace paying cargo, forcing ocean carriers to use space to carry them. And especially, with the cost of bunker fuel in the stratosphere, and the need to use very low sulfur fuel in some busy port areas, the transportation cost is high. Ocean carriers have to ‘bundle’ the cost of returns into the one-way cost of the loaded shipment. Either that, or they take a hit by moving the old containers back.
The Seatrade article by Gary Howard has nice graphs showing the average price of 40-foot used containers in Europe, and in China, provided by Container xChange. Again the question of where excess containers will be stored is raised. There haven’t been many answers to that one yet.
It’s unusual for small ships to be more valuable than large ones. But that has been happening in the tanker and dry bulk shipping area. The disruptions of 2022, following on Covid, have created markets better served by smaller ships.
One source of large dislocations in markets is a result of the Ukraine war. Because of sanctions, China has stopped shipping crude from Arabia. That was a channel that favored VLCC tankers. In addition, Russian exports of oil favor the use of smaller ships.
But other markets, too, have seen this effect as well. China, for instance, has reduced imports of iron ore and coal, partly due to Covid restrictions, and partly due to the deep slowdown in Chinese construction, requiring less steel production.
Clarksons, the shipping consulting firm, expects a reversal to more normal price differentials by 2024.
