Understanding the Global Container Shortage
Shipping containers are critical to global manufacturing, and the paper, pulp, and nonwoven industries are no exception. Approximately 90% of global trade uses shipping containers in their transportation model for goods shipments and material receipts. However, in today’s world shipping containers are becoming difficult to find due to a surprising global container shortage.
Prior to the Covid-19 pandemic, containers were easily available due to a surplus global inventory. In the midst of the pandemic recovery, businesses need to make advanced plans to acquire containers for future shipments.
Shipping Container Shortage – Cause and Effect
There are three major contributing factors to the container shortage:
- The Pandemic Global Market Decline Prediction was Wrong
The primary cause is due to an inaccurate prediction of the global trade response to the Covid-19 pandemic. Economists expected the global market to experience a significant decline in goods demand due to the pandemic. However, the predicted decline never materialized. In contrast, demand has generally maintained pre-pandemic levels for global shipments. This is true even as products have been harder to produce due to lockdown restrictions on employees and businesses throughout the world. This lack of decline was in concert with an unexpected boom in demand from the European Union and United States markets in late 2020, which had a direct effect on container usage.
- Reduced New Container Production
The second contributing factor involves container manufacturing. In the years prior to the pandemic, there was a consistent surplus of newly produced containers. As a result, container producers made the decision to reduce container production to match lower global demand and reduce the surplus. Along with the reduced production of containers, most new shipping containers are produced in China. The pandemic lockdown restrictions on people and industries significantly limited manufacturing output. This included steel production, the key material for containers. The lockdown restrictions also affected container manufacturing. The pandemic manufacturing affect combined with the surplus reduction prior to the pandemic lockdowns to compound into the global container shortage. The surplus was rapidly consumed as the global market decline never arrived, and new production was limited based on diminished production schedules and various safety restrictions.
- Increased Shipping Delays
The third major contributing factor to the container shortage is that shipments are taking longer. Due to lockdown restrictions, many major ports are experiencing delays in loading and unloading containers. With reduced hours of operation and restrictions on available workers, ports are operating at a significantly reduced capacity. Delays at the port means that the port warehouses and the ocean staging areas for waiting vessels have slowed the movement of containers. The longer it takes for a shipment to complete, the longer any given shipping container is unavailable to be used by those who cannot find one. Shipment delays combined with steady shipment volumes has resulted in containers being in use by the same product for longer stretches of time, while the need for new containers is constant. Businesses are competing to acquire containers ahead of their shipments, which then themselves are delayed, taking the containers out of circulation. In a self-replicating cycle, lack of containers contributes to delaying shipments, which contributes to lack of containers.
Container Manufacturer’s Response
Many manufacturers are asking, “When will the container supply equalize?” The answer, for now, relies on shipping container producers. In response to the shortage, the producers are ramping up production to maximum sustainable capacity, but it will take time to relieve shortages. Ongoing pandemic restrictions will continue to limit them, either directly or by limiting the producers of the raw materials they need to convert into containers. This will ease over time, but the world is not there yet.
Effect on the Pulp, Paper, and Nonwovens Industries
As mentioned, paper, pulp, and nonwoven products require a lot of shipping, and often make use of these highly demanded shipping containers. Forestry products need to be transported along rail and cargo vessels to pulp mills often, where they can be processed into pulp. While some of these raw materials can use open containers, which are not as highly demanded, they do not always do so. Pulp itself is often not converted into paper at the same location, and likewise must be transported to paper mills. While some pulp can be exposed to weather during shipping, it is much less frequent than with raw forestry products. Once the raw materials arrive at paper mills and are converted into paper goods, almost all products require enclosed metal shipping containers. As a result, the paper industry feels this burden as much as any other industry producing physical goods and bringing them to the market and their customers.
It will take time for producers to produce enough new shipping containers to meet demand. According to transportation experts, the container shortage is likely to persist through 2021, and potentially into the beginning of 2022. There are no short-term indicators that the market will realize a significant drop in global demand. If container production increases significantly to affect the shortage, the increase in shipment backlog will take time to resolve. In the short-term, shipment delays are expected to continue, and freight rates will likely continue to increase and remain high for the remainder of 2021.