What is going on with Global Container Freight prices?

Global Container shipping rates are at an all-time high

It is a very complex issue with multiple variables. Here are the 4 driving factors:

1.    Increased global demand

a.     Increase in global demand, being driven largely by the U.S. economy, turbocharged by almost $6 trillion in stimulus

b.    Covid-19 driven demand fluctuations have caused a bull-whip effect on the supply chain. Trade volume recovery was fueled by a change in consumer spending habits during the pandemic -- ordering more manufactured goods while saving by spending less on services like leisure and restaurants.

2.    Bottlenecks

a.     Bottlenecks at major ports such as Shanghai, Rotterdam in the Netherlands and Los Angeles and Long Beach have hurt schedule reliability and capacity on the water because of long waits to unload and load cargo.

b.    Infrastructure bottlenecks at the ports due to Covid-19 and labor issues.

c.     A coronavirus outbreak forced authorities to shut down parts of Guangdong province, which is home to Yantian, one of the world’s busiest ports

d.    The Ports of LA and Long Beach were backlogged at a high of 40 ships and have whittled that down to ~9 ships, but now the bottleneck has shipped on-shore with freight congestion moving containers from the port

e.    Around 50 container ships remain backed up around the Yantian port in Southern China Link

f.      Let us not forget the weeklong blockage of the Suez Canal by the Evergreen in March caused by a grounded container ship pushed back deliveries of roughly 250,000 containers by around a month.

3.    Ship capacity:

a.     In recent history a surplus of ocean freight capacity existed that lead to the collapse of South Korea’s Hanjin Shipping and forced consolidation in the industry.

b.    Vessel capacity has continued to grow year-over-year but not fast enough to meet or exceed demand

c.     New ships have been are on order but the bulk of the new ships won’t be delivered until 2023. It is estimated that container-shipping demand will rise 8% in 2021, almost double the rate of new capacity growth.

d.    Hesitancy by shipping companies to order new vessels due to uncertainty over anticipated incoming environmental regulation. Is the future going to be step-change to LNG or is environmental regulation going to drive a more drastic step change to green ammonia, or hydrogen.

e.    Additionally, the shipping companies are hesitant to add additional capacity due to risks of geopolitical tensions, trade protectionism, and uncertainty about economic recovery paths in different regions.

f.      A decrease in the number of shipyards globally to supply the ships. Shipyards have decreased by two-thirds since 2007 to about 115.

The ordering of new vessels has been on the decline, until recently Q4 2020

4.    Shortage of shipping containers

a.     Many containers are stuck in inland depots. Others are piled up in cargo ports, and the rest are on board vessels, especially on transpacific lines. The largest container shortage is in Asia, but Europe also faces a deficit.

b.    Compounding on the shift in trade imbalances and bottlenecks is the production of new containers is woefully low. The rate was already down in 2019 and dropped even further this year, especially when demand fell dramatically in Q1 2020. The scrapping of containers now exceeds the building of new ones, causing inventories in factories to plummet. It will take months before more vessels and containers are built, meaning capacity likely won’t normalize until Q2 2021

c.    This limited access to available containers is also driving up the buying price of new containers,