Is The Container Shipping System Running Out Of Capacity?

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The recent return of vessel queues outside major ports like Singapore, reminiscent of the Covid era, indicates ongoing issues within the global container shipping system. This system, responsible for transporting 45% of global trade by value, remains vulnerable to disruptions, particularly when trade volumes surge rapidly, reports SP Global.

Recurring Port Congestion and System Vulnerabilities

The reappearance of port congestion underscores a persistent issue: the shipping system’s vulnerabilities have not been fully addressed since being exposed during the COVID-19 pandemic. These backups are driving a surge in shipping costs, with spot freight rates tripling on key routes such as the trans-Pacific over the past eight weeks. This is happening despite a record year for new container ship deliveries in 2024, with 461 new vessels, many capable of operating on zero-carbon fuel, entering the market. This influx of new tonnage, however, has not alleviated the problem as no ships are currently idle or being scrapped, and charter hire prices have spiked.

Demand Surge and Systemic Strain

A surge in demand is overwhelming the system’s capacity, reminiscent of the Covid period. Container volumes increased by 9% in the first quarter due to inventory restocking, an earlier peak holiday season, and global economic growth. S&P Global Market Intelligence has raised its global GDP growth forecast twice this year, highlighting the strong economic momentum.

Two major factors are exacerbating the capacity strain:

  1. Ship Diversions Around Africa: To avoid attacks in the Red Sea, ships are taking longer routes around the Cape of Good Hope, effectively removing 6-7% of vessel capacity from the market early this year. This extended travel time also absorbs container equipment, leading to a container shortage. Container prices and leasing rates in China have sharply increased, indicating this shortage.
  2. Vessels Falling Off Schedule: The robust cargo growth has led to ships spending more time in ports, causing them to miss their scheduled berthing slots at subsequent ports. This results in longer waiting times offshore and disrupts the overall efficiency of port operations.

Port Efficiency and Supply Chain Disruptions

Port congestion remains a central issue, as highlighted by the situation in Singapore. PSA Corp., the operator of the Singapore port, reported increased vessel wait times due to off-schedule arrivals and higher container volumes. To cope, the port has reactivated dormant facilities.

This scenario mirrors the COVID-era disruptions, where containers piled up at ports due to external issues like insufficient trucking or warehouse space. Ships occupied limited berth space longer, causing a backlog of vessels offshore. At the peak of the crisis in January 2022, 109 container ships were backed up off Los Angeles-Long Beach, the largest port in the Western Hemisphere, compared to typically empty anchorage areas.

Systemic Challenges and Lessons for Companies

Today’s congestion, though less severe than during COVID-19, highlights unresolved issues such as inadequate visibility into cargo volumes and the inability of ports and transport providers to prepare effectively. There is also a reluctance to invest in surge capacity, based on the principle that it’s impractical to build infrastructure for peak demand periods.

For companies dependent on container shipping, the lesson is clear: the system, while functional under normal conditions, remains fragile and vulnerable to external shocks like pandemics, attacks on shipping, or volume surges. Lean inventory strategies, which rely on reliable logistics, will always be susceptible to these vulnerabilities. This reality remains unchanged from 2020 and continues to pose a risk today.

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Source: SP Global