By Grace Renderman, Associate Editor
War, COVID-19, economic crises: The global supply chain continues to experience major disruptions in every nook and cranny, with many ports logging record container levels and ever-increasing backlogs. Most ports in North America, Europe and Asia are expecting more of the same slow-down congestion that’s been the new normal since last year.
Christian Roeloffs is CEO and co-founder of global trade and logistics analysis firm Container xChange. Founded in 2017, Hamburg, Germany-based Container xChange has grown from two offices in Germany and Indonesia to 77 satellite locations. The company employs more than 300 people in over 65 countries. In 2020, the company launched what it says is the world’s first third-party container trading and leasing marketplace.
For a supply chain update at the year’s near midpoint, Associate Editor Grace Renderman asked Roeloffs a series of questions via email. His replies follow.
RailPrime How are the recent lockdowns in China affecting the rail link in the supply chain?
Roeloffs: We do know that the China lockdowns do not have a direct impact on the freight-rail industry, though there are many levels to efficient supply chains that become slowed down when there are lockdowns, especially in China — the epicenter of global trade. The truckers' movement and the closure of factories are just some initial repercussions that will be harmful to the long-term supply-demand function.
It's almost like a traffic jam: Some people stepped on the brakes heavily, and this will lead to a significant bulk-up of demand for freight services, which will essentially be unleashed once the factories reopen. And when demand is back, the carriers will not have enough equipment on the ground because not enough equipment went into China during the port lockdowns, and not enough vessels are available, so that will push up prices once again. This will continue pushing the volatility in the market. The congestion situation on Transpacific routes will also not significantly improve, because it's like a start-stop situation. It will just come back worse than it was before, because the way you remove the traffic jam is not by stopping something violently and then hitting the accelerator again. It's making sure that the traffic flows at a certain speed.
RailPrime China accounts for 12% of world exports and 10% of world imports. What impact does it have when other high-volume countries are returning to regular trade, while China may not?
Roeloffs: The ports are functioning normally in China, according to experts from the industry. The challenge is more on the land side. The production slowdown in China will be more of a supply problem in countries where the demand is, so North America and the European Union will get impacted if production slows down for a longer duration. The peak season will take a hit if China lockdowns persist.
Editor’s note: As of June 6, China’s largest cities were no longer experiencing widespread lockdowns. Restaurants, schools and mass transit are returning to limited capacity in most places there.
RailPrime What impact has the war in Ukraine had on container volumes?
Roeloffs: The war has impacted Europe greatly. First, containers are stuck in the terminals waiting for transhipments to Russia, and the result is a huge pile-up there. The second significant impact is on the China-Europe rail lines: The northern corridor is still open, but volumes are massively reduced due to uncertainty in the market. That has pushed cargo towards sea freight and, even in some cases, toward air freight. Low-value cargo has largely suffered because high-value cargo has been pushed to ocean transport.
Logistics companies are wary of trade lanes, trade partners and shipments to and from Russia. Market volatility has caused uncertainties in the market, which has produced massive delays and reduced capacity.
On a more global scale, the rise in oil prices has been a major repercussion as a result of the war. More global players are unclear about the restrictions of doing business with many companies because there are second-order and third-order sanctions that also need to be considered while doing business. Companies are hesitant to make decisions, and selection of new trade partners is significantly impaired.
RailPrime When will the supply chain begin to return to "normal"?
Roeloffs: Global trade growth is projected to slow to 5% this year from an estimated 10.1% in 2021, according to an International Monetary Fund report. The ever-increasing disruptions have led to increased uncertainties in the supply chain. However, it does seem like we have now reached the peak container turnaround times. Container demand versus supply has reached near-balance levels, and that means prices will also taper off a little bit while probably not falling through the floor, as is evident in the report. Beyond this, it really depends on the disruptions. Once China resumes operations in full swing, there will be pent-up demand for containers, considering we have peak season coming. This will cause a traffic jam of vessels, and the demand for containers will rise, causing container prices to shoot up again in the mid-term.
In the long run, however, this pent-up demand for containers will eventually ease because we hope that the disruptions will end. And then, we can expect that there will be a surplus of containers leading to container prices stabilizing or even falling again. Going by the way the first half of the year 2022 has gone by, these disruptions will be faced by the industry well into the year 2023.
RailPrime Reports from Deloitte Touche Tohmatsu Ltd. and other firms say retail companies are trying to get ahead this year by ordering early for Christmas and other holidays. Are they driving higher container volumes?
Roeloffs: It is a given that there is early ordering as preparation for the peak season. Container xChange conducted its industry pulse survey in May, and one of the questions we asked our 200 respondents was, “How are you ensuring you have enough inventory for clients?” Thirty-seven percent responded saying they are shipping early. So, yes, there is a panic-shipping response to the Chinese lockdowns within the industry, and we can see the repercussions as the congestion peaks further on the American East Coast and other import destinations around the world.
RailPrime What areas of the world are seeing the best recovery in terms of decongesting ports and working through backlog?
Roeloffs: This is the time of the year when, traditionally, there are more exports out of Asia going into the United States. Adding early shipping on top of that will introduce chaos to the peak season. At this point, we do not see much decongestion at the major ports. E.U. ports, of course, are a different story because of the war in Ukraine.
