In our (soon-to-be) post-COVID-19 world, much is occurring in the shipping industry. It seems to be an ever-changing landscape, and it’s important to have an expert to help guide you through it. That’s one reason Cyclone Shipping provides you with our monthly shipping update. This month, we’re discussing container demands and how they continue to outpace capacity—with some predicting it will continue into 2022 and beyond.
Industry Update: Container Demands Outpace Capacity
American Shipper puts the issue into perspective: the more profitable the market conditions for companies that lease shipping containers, the tighter box capacity is and the more cargo shippers must pay liners for transport. It comes to a simple equation of demand being higher than supply, which naturally drives up costs.
Another issue is that only three companies produce the majority of boxes used around the world; together, they manufacture 80% of what’s currently in use. And while output of new containers has increased nearly 8% this year, it’s still not keeping pace with demand. And what’s currently available only represents roughly three weeks’ supply.
The Journal of Commerce predicts that 2021 will be the first year since 2017 that container demands will exceed capacity by 4%. That number is predicted to slowly even out over the next few years to 1.53% in 2022 and 1% in 2023. While that may not seem high, the Journal of Commerce shared that container demands will likely outpace capacity through 2026—five years into the future.
Case Study: Dollar Tree
Low-cost retailer Dollar Tree let investors know that the rising cost of shipping goods is likely to cut into profits in 2021 and beyond. In March, they released a statement that freight costs for the remainder of the year are projected to be 70–80 cents a share higher than the previous year. Thankfully, they—like others—don’t expect this increase to be permanent, but it can be a significant challenge in the short term.
Projection: As Economy Builds, Shipping Constraints Will Tighten
Now that most of the world is in some stage of pre-pandemic normalcy, the economy is poised to enter its sharpest increase since 1984. While that sounds like great news, it likely signals a big issue for getting goods where they need to be.
In fact, an April 2021 economic forecast predicted a 6.2% expansion for the remainder of 2021. And that was a .5% higher number than the company, IHS Market, had predicted just a month prior. In fact, some economists are suggesting that a 10% increase is highly possible.
Recommendations
Given that the economic growth will likely continue, that means that container demands will also continue to outpace capacity. A bit of a double-edged sword, a better economy is a huge boon for business, but when those businesses need to get products to customers, it can cause a challenge. As we mentioned last month, port congestion on the West Coast is another issue. And now, that congestion issue is spreading.
Remember that we are quickly approaching back to school, Halloween, Thanksgiving, and the winter holidays, when retail sales will no doubt increase. And that will put added pressure on the shipping industry. Your best bet is to plan way ahead to navigate the issues proactively rather than waiting until container demands really affect your business.
Cyclone Shipping Has Your Answers
In addition to our monthly shipping update, we encourage you to reach out to us at Cyclone Shipping. We keep our fingers on the pulse of the industry and know about everything that’s happening, from container demands to shipping costs. Contact us to develop your strategy and keep your shipments moving.
