Box shortage unlikely to cause 2018 supply chain crisis - Drewry

1/9/2018

The rebound in container trades is unlikely to result in a major shortage of boxes, according to Drewry.

Leasing companies have recently expressed concerns that they could run out of containers after Chinese New Year, leaving shippers short of equipment and driving up freight rates. However, Drewry said there was still “some slack” in the container manufacturing industry and, even with new regulations likely to limit output, “this hardly looks like a major crisis - lessors and shippers alike can relax”.

New container regulations introduced in April require manufacturers to use water-based paint instead of traditional solvent-based coatings. This could disrupt production in the temperate regions of China during the coldest winter months because the new paints take longer to dry, potentially affecting as much as 60% of global capacity.

Given that box demand is expected to stay strong into 2018, and there are no precedents to judge how bad the disruption might be, Drewry said it was understandable that buyers were worried.

“The situation is certainly awkward, but is there likely to be a full-blown crisis? Drewry’s analysis suggests the problem might be exaggerated,” said its latest report.

“Most factories have been running with one or 1.5 shifts per day for most of this decade, so utilisation has tended to be around 60-70%. If they returned to double-shift production, capacity would be close to 5.5 million teu a year, or 50% up on the current production volume.”

Drewry said it was also notable that the loudest complaints had come from leasing companies. “Their purchases of new containers have exceeded those of carriers in six of the last eight years, while they have also been buying up the carriers’ older stock of containers,” said the report.

“Better access to finance will keep the leasing companies on the front foot, as carriers move away from direct ownership of boxes much as they had earlier moved away from direct ownership of tonnage. Any supply squeeze is thus likely to hit the lessors hardest.

“But the leasing firms do have a safety valve. Most new purchases in recent years have been for replacement rather than expansion. That makes sense, since the leasing companies own a large number of older units bought from transport operators in recent years. If there is a tightening of supply, the leasing firms have much more scope to hang on to their older units rather than scrap them, thus artificially expanding supply.

“Those boxes will eventually have to go, but we are looking at a short-term tightening of supply rather than a long-term crisis.”