Sixty-five years ago, a North Carolina trucker named Malcom McLean pioneered the standardized shipping container, launching a global trading system that lifted millions of people out of poverty and created a generation of discount-minded American shoppers. Those boxes are now at the center of a worldwide transport puzzle as a shortage of containers in the right places has disrupted supply chains, idled car factories and sparked a surge in costs that’s pinching companies and consumers. Here’s a look at how a system so geared to move massive quantities of goods has been so slow to adapt.
1. What caused the problem?
In the simplest terms, the supply of containers fell well short of demand where and when they were needed most. According to Container xChange, an online platform based in Hamburg, Germany, there are 25 million containers in use worldwide making 170 million trips a year and another 55 million made when they’re empty — on return voyages or to be realigned with demand. The system usually works well but can run aground trying to adjust to sudden, unpredictable shocks. Enter the pandemic of 2020, when even the most sophisticated economic risk models were useless.
2. How did the system break down?
When the demand for goods rebounded more strongly than expected in the second half of 2020, the varying speeds of recovery across the world created a container shortage between China and the U.S., clogging one of the main thoroughfares. That led to backlogs at U.S. ports, truck yards and railroad hubs that handle intermodal freight. With dockworkers out sick and shortages of truckers, there’s plenty of blame to share on land, too. By the start of 2021, the system was nearing a breaking point and the disruptions reverberated to other regions, including Europe. A key point to remember: Most rates that big companies pay for shipping are spelled out in annual contracts with the carriers — not the volatile spot rates grabbing headlines. And those fees don’t include hefty premiums now commonplace to ensure more reliable services like guaranteed loading.
3. Why couldn’t it adapt quickly enough?
The disruptions of 2020 showed the industry’s consolidation left it less nimble to respond to demand swings but swifter and more unified in cutting capacity — and as a result, keeping rates elevated. About half the world’s containers are owned by the 10 major shipping companies and the rest are leased to the carriers by leasing companies, or owned by freight forwarders or other cargo handlers. The carriers — a mix of publicly traded, privately held and government-backed firms mostly based in Asia and Europe — sail along routes on fixed schedules matched to their expectations for market forces, handling about 90% of the worldwide trade in goods. After years of cutting capacity and creating alliances to boost efficiency, companies such as Copenhagen-based A.P. Moller-Maersk A/S are now enjoying some of their best profits in years. But the deals have also raised concerns about concentration that’s hurting competition. The carriers have also stirred controversy by returning containers to Asia empty rather than filled with American exports because the eastbound route has been so profitable. The U.S. Federal Maritime Commission is investigating.