The oversupply of containers is contributing to second-hand container market prices plummeting, according to a new analysis from Container xChange.
Freight rates have come down by approximately an average of 20 percent since the beginning of the year 2022 and these will continue to slide gradually, but there will not be a massive decrease because the underlying disruptions in the supply chain are still in place, said Container xChange, a tech platform built to simplify the logistics of container movement.
Inflation has started to stress the U.S. and the European Union economies. With inflation and pandemic-induced lockdowns, disruptions will continue to change the equation between supply, demand and prices, Container xChange said. In the longer term, these will phase out and create a new normal balance of supply and demand.
Meanwhile, Drewry’s composite World Container Index (WCI) was down 0.7 percent to $6,998.80 per 40-foot container or equivalent unit (FEU) for the week ended July 14 and declined 21 percent when compared with the same week last year. For the year to date, the average composite index of the WCI was $8,321 per FEU, which was $4,788 higher than the five-year average of $3,533 per FEU.
“The current situation of oversupply of containers is a result of a series of reactionary market disruptions that began soon after the outbreak of the pandemic in early 2020,” said Christian Roeloffs, co-founder and CEO of Container xChange. “With the rise in demand, congestion at ports increased and the container capacity was held up for a considerably long period of time. This led to the panic ordering of new boxes at record levels.”
With time, as markets reopen and demand softens, the oversupply is a natural outcome of demand-supply forces balancing at new levels, Roeloffs said.
“The oversupply situation does not come as a surprise because the average container prices and leasing rates have been declining globally since September-October 2021,” Roeloffs added.
The report cited data published by Drewry that indicated an excess of 6 million 20-foot containers or equivalent units (TEU) of capacity in the global fleet of containers. Container xChange analysis noted that the oversupply will lead to the requirement of more depot space, which is already scarce. In a scenario that assumes the global supply chain disruptions will fade away with time, there will be higher container productivity and fewer need per unit of cargo, it added.
“As we witness the easing of supply chain disruptions in the coming months, it will lead to higher box productivity and a structural surplus of containers,” the report said. “If we also see further softening of demand, this will increase the supply of containers available for cargo…This situation will lead to tighter depot space, carriers will rush to get rid of their older equipment, second-hand container prices will continue to slide gradually only to reach a new normal level and the new market will dry up.”
If demand falls and supply increases, prices will fall, and that is what is currently happening with the container prices, according to Container xChange.
“To sum up, we foresee a significant rise in the pent-up, peak season demand,” it said. “This will likely keep container prices potentially stable in the short term as we inch closer to the peak season. What remains to be seen is how the geopolitical circumstances and the pandemic-induced lockdowns play out in the coming months.”