Wednesday, October 20, 2021

Empty containers are now a big part of the supply chain logjam

 

For a long time, commenters (including yours truly) have noted that part of our supply chain problems is that empty containers can't get to factories on schedule, in order to be filled with goods for shipment to markets.  That's still a problem:  but it's being aggravated by much more serious problems with empty containers.  It's a complicated issue.

First, containers that arrive at their destinations have to wait to be emptied, because warehouse space is limited and distribution channels are already overloaded.  A box that travels from China may take two to three months to get here (from wherever it was stored to the factory, then factory to harbor, harbor to ship, ship across the Pacific to America, from ship to shore, from shore to inland transport - rail or road - and then to the distributor, where it'll be unloaded and its contents delivered).  However, the supply pipeline that delivered it is still clogged with more containers being delivered.  How is the now-empty container to be returned for another load?

That's a lot more complicated than it sounds.  Logically, one would expect that the next rail car or truck to offload its incoming containers would simply be reloaded with empty containers and sent back to a seaport.  However, there's such a backlog that those rail cars and trucks may have to sit, loaded, waiting for days, weeks or even months before they can be offloaded.  While they're sitting there, they can't carry more containers.  They've effectively been removed from the pool of available vehicles.  The untold thousands of empty containers awaiting return therefore can't be picked up - they have to sit and wait.  That creates immense storage problems for receiving depots and warehouses, which have dozens, or hundreds, or even thousands of empty containers filling all available space, preventing them from taking delivery of more incoming containers.

What's more, when a rail car or truck eventually becomes available, it may be nowhere near where the empty containers are waiting.  It might have to be sent back to the port very urgently, to collect the next shipment of incoming containers, even though that may mean leaving empty containers behind.  Time (in the form of storage fees for full containers, costs to distributors and retailers through delays in getting their products to market, etc.) may be more expensive than the price of a container these days.  If the vehicle is forced to wait to collect empties, some shippers are now adding surcharges to their rates to pay for the delay costs, plus the missed opportunity to load up with better-paying full containers.  In so many words, the longer a container remains at a distributor, the more it costs them in storage space, and the more it costs them to get rid of it.  They can't win.

That also affects US factories and producers waiting for containers to load products for export.  The overloaded road and rail networks can't cope with their present burden.  When you add to that the need to ship an empty container from receiving warehouse A to manufacturer B, to be loaded there and then shipped to port C, you're adding in an extra leg of the journey - and there may not be enough vehicles available to cope with that.  They're all overloaded just dealing with the present situation, without any extra legs.  Hence, US manufacturers are complaining they're being short-changed because they can't get the empty containers they need.

When the empty containers finally get back to a port, the harbor is faced with the dilemma of where to put them if there's no ship on which to load them.  Some British ports recently hit this problem head-on.


London Gateway has shut its gates to some empty container flows after receiving a deluge of boxes diverted from Felixstowe, which had similar problems earlier in the week.

. . .

“CMA now been shut out from Felixstowe, hauliers are having real problems knowing where there is space to return empties – I have one of my hauliers charging me £500 [about US $700] on top of my rate, so a lot of hauliers are trying to profiteer.

“I am hearing the ports are telling shipping lines, ‘you’re not berthing unless you commit to loading your empties back out’,” one freight forwarder told The Loadstar this week.

. . .

However, Maersk explained that the gate closure earlier in the week at Felixstowe had now caused congestion problems at London Gateway.

“Due to the high volume of empty returns following the gate closures at Felixstowe, we have seen an extraordinary amount of empty returns into London Gateway. Already operating with a high yard density, yesterday the terminal authorities made the difficult decision to close their gates for empty returns,” it said, adding that it did not expect the gates to reopen until next week, although it had secured some additional storage space in nearby Tilbury.

A London Gateway customer advisory issued last night said: “With the current high volumes (laden and empties), we are closely monitoring our stack levels to ensure port operations are not compromised.”


There's more at the link.

Even when the empty containers reach a port and are loaded onto ships to send back to their ports of origin, that's not the end of the problem.  Some of those ports are so full of other containers that they have no place to offload and store the empties.  This costs shipping companies a huge amount while the empties take up space on board ship - space that can't be used to carry a full container to its destination.  Maersk estimates its ships are sailing around with up to 4 million empty containers every year, and the problem is costing it about a billion dollars annually.  That's just one company.  Imagine how much it's costing the shipping industry as a whole.

Of course, the shippers are going to try to recover those "empty costs" from the customers who ship with them - who are going to be very, very unhappy at having to shoulder the additional expense!  Some customers may decide it's better to abandon empty containers in the USA, rather than pay through the nose to have them shipped back to China.  That would apply particularly to containers that are a few years old and have already made multiple journeys, and have therefore amortized their purchase price in full.  Their owners can afford to "write them off" the books as a loss against their taxes.  An accountant might find that appealing.

There are lots of companies marketing empty containers to Americans.  They're used as storage buildings, converted to residences, and all sorts of other things.  You'd think that, with so many empties available, their price on the used market would drop;  but many such companies appear to be trying to use the supply chain logjam as an excuse to raise their prices, on the grounds that all containers are in use and it's hard for them to get any more.  That's not true, of course.  There are so many empties right now that they should be selling for pennies on the dollar;  but then nobody in the business would make any money on them.  The transport costs to move them from where they are to where they're needed are far more expensive (and hard to arrange right now) than the cost of the containers themselves.

To keep pace with this problem, and make sure containers are still available, shipping companies are ordering more of them (to the tune of literally billions of dollars) from manufacturers in China, who are working flat out to build them.  For example, Evergreen has ordered 16,000 new containers this year alone, and will probably order more before long.  It's sometimes cheaper, faster and more convenient to buy a brand-new container from a Chinese factory, and have them ship it directly to another manufacturer who'll fill it with their products, than it is to arrange the long, tortuous, expensive return of an empty container from the US Midwest to China.

I wonder how long it'll be before empty containers build up across the American landscape like flotsam and jetsam on a beach?  I'm already seeing "container parks" being set up on empty ground near a couple of major cities near here, where empties are stacked high and spreading out.  Who'll pay to clean up those sites in due course, and scrap the containers?

Peter


17 comments:

Aesop said...

Now you're getting to the right of it.

Never was the phrase "It's complicated" more aptly used than what happens when you force-close the entire worldwide logistical system, then try to jumpstart it from a standstill to 125% of capacity, after being largely idle for over 18 months.

Back to doing the math on LA/LB, with an estimated 25,000 TEU (which is equivalent to the cubic size of a 20' half-sized-size container)/day unload capacity, at 20% overload, that means each day, even running flat-out, 2000 40' containers excess to ability to move. 10,000 each 5 days. 500,000 after 100 days (which is where things are now. There's your 50+ ships, already.

Then start subtracting railcars and trailers with loaded conex boxes awaiting unloading on them, and the capacity of the logistics chain shrinks every day it runs (which is perpetual), and eventually, nothing moves, anywhere.

You can't even make new conex boxes, because you can't get the new empties anywhere either, because they use the same logistical movement system, which you already choked with full containers.

It's like putting more cars on the highway, when nothing is moving, and closing all the offramps.
Nothing moves, anywhere.

That's where we're headed, at an unknown speed.

And in order to ride it out, people need stock up, which yet again, puts more stress on a failing system.

As Cliff Claven would say, "What you got there is one of them there vicious circles."

Indeed.

TheOtherSean said...

Some options for what to do with the stacks of empty containers include:
1. Create amazing mazes
2. Spell out "Let's go Brandon" many times over
3. Cells to house the members of the former Biden-Harris regime
4. Move to the borders and fill with dirt to create border walls
5. From them into a ring wall around Washington, DC so the scum can't escape, then start the bombardment
6. Wall to keep Californians from escaping and Californicating the rest of America
7. Deploy as walls around BLM/Antifa riots, weld shut
8. Ship illegals back where they came from
9. Recycle for materials, use materials to build a border wall
10. Ship Biden-Harris Regime to Siberia

MNW said...

When we become hyper inflationary everyone will need a 20' connex of bills for bead and coffee.

Can we skip making holes inches If we use them for politicans and beurocrats? Hell the amount if hot air might make them float

Dragon Lady said...

If I was hearing the story correctly this morning, apparently trucks are stacking empty containers all over outside the ports in CA. One woman said she stood in the street to keep yet another truck from driving thru to drop off it's empty container. They're stacked so high, one stack fell over and crushed a car.

Maybe we just load them on planes and drop them over Beijing? Kinetic energy is a blast.

Paul, Dammit! said...

Here's today's turd in your soup:

Maersk, which is to say, the government of Denmark, being one and the same thing fiscally (Maersk is fully backed by Denmark, who acts as their bank and principal investor), has sold off their container construction business to the largest container builder in China, who already bought the container building trade from the other large non-Chinese shipping companies. So China now has a virtual monopoly on container construction, too.

Oh, just to illustrate that Maersk is pretty much Evil, inc, a 19-year old American girl from the US Merchant Marine Academy got raped by a senior officer on one of their ships earlier in the year. Maersk swept it under the rug. They did not fire the accused or the officers who discouraged the lady from reporting the assault, but encouraged them to go home early with pay. Maersk has thus far refused to investigate further. A poll of all enrolled USMMA female cadets found that 100% experienced sexual harassment aboard Maersk vessels.

The US Department of Commerce has visited most US East Coast container ports, after multiple complaints that loaded containers for export are being rolled over (not loaded) in favor of empties for transport to China. So Maersk crying about the cost of moving empty containers makes me want to break out my little tiny violin.
It occurred to me today that with the scrapping of smaller (i.e, < 5,000 TEU) ships in favor of fewer, larger ships, the industry as a whole is far less versatile than it was just 2 years ago. Ironically, the market for used small container ships was insignificant for lack of demand just 2 years ago, and is nonexistent now for lack of supply. They've all already been scrapped.

I'm seeing more bulk ships repurposed for carriage of containers, which they can do, but not efficiently. I bunkered an Indonesian Very Large Bulk Carrier, normally a collier, just this morning, that had been shifted from its' normal route running coal from the US to India to be refitted to carry some containers. About half of what a similar sized container ship would carry, but better than nothing, and bulk ships are underpowered, designed to sail at only 10 knots, so they're cheap to operate.
OTOH, I'm seeing more inquiries for bunkers for cruise ships this week, and we're gaining about 1 new scheduled ship visit a week in NY. I suspect that the mothballed cruise fleet is getting ready to break out.

Jess said...

Locally, used containers were available for years at a reasonable price. You went to the large storage yard, picked the one you wanted, made arrangements for having it delivered, and waited for the delivery. If I had to guess, the sellers had a valuable resource (land) for storage, took advantage of those needing to rid themselves of older containers, and bought them for a really low price.

I don't know how it is today, but containers are valuable. A little paint, some modifications, and a few large treated timbers, yields a storage building without equal.

Jesse said...

Every remote mine site is filled with old sea cans being utilized as storage and even modified into structures for use of occupancy. They are a marvel. Use them.

boron said...

a possible solution to the homeless situation: Mexicans, Afghanis, et al?

Aesop said...

@boron,

Pointless, unless we're going to ship them to China as well.

Amahl_Shukup said...

With proper design, welding, shaping, stacking, and customizing, and utilities installed, these could be turned into low-rent (or affordable) apartments. Spry paint them white in the Spring to reflect sunlight to reduce cooling costs, spray paint them black in the Fall to assist heating them. Universities could create high-rise student housing at a fraction of construction costs for large brick buildings.

JoshO said...

They aren't really cheap housing unless someone is just giving them away. And even then you still have to frame up the inside and cut holes for water and power lines and doors and window which then generally require reinforcement with wood or steel anyway

Unknown said...

They are hot and miserable to live in, at least in California's Central Valley.
Cold in the winter too.
They make adequate, but very heavy sheds.
Having lived in,and with them, they are more trouble than they are worth, at least in my opinion.

Noveske's Rock said...

In the cargo airline business ensuring you have aluminum aircraft pallets ahead of each flight prepositioned in time for cargo buildup is a full time job (ULD controller). Fortunately you can stack the pallets, nets and straps in a stack of 20 and move them as belly freight in a wide body. I always hated to use containers/cans as you sacrificed a position if revenue cargo to move them when empty.

An additional challenge shipping empty containers on ships is they lack weight. When you balance the cargo on a ship it needs to even out not only fire and aft, port and starboard but vertically too. Having too many empty cans makes weight and balance a little more tricky. Best place to load them is as deck cargo so if you lose a few to a rogue wave it’s no big deal. That means your revenue cargo is buried beneath them and the empty cans have to be double handled ($$$) just to get them out of the way at intermediate stops

CheezusCrackers said...

The world is headed to a dark place and it might be best for the women to avoid maritime as a profession until such time as law and order return, if ever.

CheezusCrackers said...

The solution to this mess is going to be rather simple and practical: consumers, faced w a choice of a product that is imported and unavailable (and likely more expensive now due to exorbitant shipping costs) versus a domestic product that is available (even if more expensive) will choose the latter every time. You take what's on the #%#^@ shelf. Retailers, faced w zero sales of imported/ unavailable product versus available and revenue producing product will increasingly offer the latter. You sell what you $^#^@ have not what you dont. Eventually demand for domestic products that have short logistics will create (absent govt idiocy, the weak point i admit) expanded domestic production which will have a ripple effect as producers demand that inputs also be produced domestically. In sum, humans only use a system that works. When it stops working they abandon it pretty quickly, the smart ones first and the dumb ones later (the dumbest being eliminated by then). A logistics system for imports that is as broken as this one for as long as it will be is being abandoned will be abandoned at an exponential rate as producers and retailers start creating and using domestic sources. Tough shit China. Your flu was the last import we will take.

The Guy said...

Unless you build a shed for it, they aren't well built for rainy weather. The tops will rust out in a few years. I refurbished 4 a few years back. They were $2,500 a pop.

Ray - SoCal said...

More on the Ca port fiasco:

In 2019 due to the Covid recession 640 trucking companies across the us filed for bankruptcy;
https://www.frontpagemag.com/fpm/2021/10/california-drove-truckers-out-business-now-store-daniel-greenfield/

In 2020 the Ca DMV stopped renewing older trucks (before 2010) registration:
https://www.aqmd.gov/docs/default-source/ab-617-ab-134/steering-committees/wilmington/handouts-may9-2019.pdf?sfvrsn=8

More on AB5:
https://www.topmarkfunding.com/california-ab5/

I don’t think the ports currently have any new special truck regulations. Stuff was done in 2014:
https://www.portoflosangeles.org/environment/air-quality/clean-truck-program

2019 Ca truck registrations (private and commercial)
https://www.statista.com/statistics/191023/registered-private-and-commercial-trucks-in-the-us-by-state/


Be nice to find some real numbers…

This looks promising:
https://www.bts.gov/browse-statistical-products-and-data/national-transportation-statistics/number-us-truck