When will container prices go down?

When container prices shot up during Covid pandemic, we all though that the situation would be transitory. Nobody thought that, more than a year later, the situation would be so dramatic: prices are ten times higher than usual and, even when you pay, it’s very hard to get a container, and 2-3 week delays are normal. What has happened? When will the situation go back to normal?

Right now, the main factor that keeps the prices up is the change in consumer behaviour. During the pandemic consumers could not spend in services (restaurants, gym, traveling, cinema…) so we had more money to spend in goods (and we were locked down at home). So a big part of what consumers spend in services, moved to goods (cargo levels between Asia and US are 27% higher than before the pandemic). The logistics network is not flexible, and can not adapt to such rapid volume increases (new ship orders are at a 10 year high). You don’t build a container ship or millions of extra container boxes overnight. So, right now, there is much more demand than space available.

To make it worse, Covid disruption has caused port closures (especially in China because of zero Covid policy), less truck drivers, less trains… the before and after ship logistics chain is less efficient than it used to be. As we speak, there are more than 100 ships outside of LA port, waiting to be unloaded. That’s more than 1 million containers. Biden has issued an executive order saying that the port must work 24/7 until the situation goes back to normal. But even if the port works more, you can not get more lorries, trains, crane operators… from one day to the next. So the situation will not be solved overnight.

So, with space so scarce, we have entered a kind of auction system. You want your container to ship? You pay more. So price of a 20’ from Ningbo to Barcelona (USD700 pre-pandemic) is at around USD7000. But if you really want your container not to delay too much, then you need to pay platinum rate (a nice invention from shipping companies) which, depending on the moment, can be near USD10000 for a 20 feet container (rates change a lot depending on the day)

Shipping companies say they are doing everything they can. Maersk CEO said that they have every available ship at sea (I would too, with the ultra profit they make per container…). But reality is that their costs have barely increased, while this auction system has multiplied their prices by 10, so they are having the best results in their history at the expense of their (beloved) customers, who can go nowhere because the industry consolidation has turned shipping into an oligopoly (as we explained in this post). Proof of this is that CMA logitics CEO (CMA is the third biggest container carrier) said that prices would not increase more until Feb 2022. Translation: he decided that USD7000 for a 20ft container is enough, and that we would keep paying USD7000 until the situation gets back to normal (maybe Biden’s remarks about how logistis is too important to be left to 4 companies has something to do about his generosity too)

                            Maersk stock price

So when will things get back to normal?

Nobody knows. But as vaccination rates increase in the US, we should expect consumption to rebalance again. People will begin going out and spend money on retaurants, bars, cinemas, gym, travel… Spending in services will increase, so demand for goods will decrease. But we have Christmas season coming, and Chinese new year holidays beginning end of January. When Chinese factories reopen at the end of February there will still be a huge backlog of goods to be shipped, so high demand for containers will drag on for two or three monthes…

So as I said at the beginning, nobody knows when prices will begin to go down. Two or three monthes after chinese new year looks like a sensible guess. But container transportation industry has consolidated and competition is low, judging by these companies current behaviour, they will not allow the prices to decrease until they are really forced to.

On the other side, with public and governments awareness increasing, and inflation on the rise, it’s possible that governemt pressure forces them to set a more logical price. Instead of CMA boss deciding that prices would stay at USD7000, he could decide that they will stay at USD3000. And they would still have a huge profit.

Marc Torras