The ocean industry has a lot of “situations” going on right now — including lack of technology, port congestion, capacity shortage, container shortages, vessel size (which leads to longer load/unload times), and vessel sharing (which restricts capacity and competition)...just to name a few.

The carriers are addressing their technology issues through a group called Digital Container Shipping Association (DCSA). Port congestion is largely out of their control as it’s a complicated mix of landlords, port owners, labor, and carriers; however it does play a big role in this “situation.”

As far as over capacity and container shortages, they are related. Both were byproducts of the pandemic. It is called the bullwhip effect.

1. January to March: Suppliers can’t supply
2. March to June: Buyers can’t buy
3. Carriers respond to lack of demand by pulling capacity
4. Pulling capacity creates a container imbalance
5. The imbalance creates a container shortage, just as demand picks back up due to the “normal” holiday surge
6. The container shortage causes “panic” (as you saw last summer with lack of toilet paper)
7. Panic drives up demand as buyers worry they won’t have enough
8. Increased demand and container shortages drive up pricing
9. Increased pricing creates a market frenzy as buyers and their logistics providers scramble to adjust
10. Delays begin to ensue across the board as suppliers wait for containers, ports slow down, and upstream suppliers run out of raw materials
11. The increased demand, pricing, and frenzy continue through the normally slow first half
12. Demand continues due to “the normal” holiday surge which begins in May, so the cycle continues

Shipping is a complex and interconnected global network, and when you pull capacity, it upsets the intricate balance of trade. In Asia to North America trade, for example, there are four inbound containers for every one outbound container. In order to correct this imbalance, carriers load empty containers from North America to supply the demand from Asia.

When you pull capacity, you break the balance, which leads to a massive shortage of containers. When containers are unavailable, it impacts the whole supply network. Factories have nowhere to put the product they manufacture, importers can’t get the goods they scheduled months in advance — and it still takes 90 day to make products.

This leads to panic, including paying premiums to get whatever containers are available.

It also leads to panic buying as importers worry that they won’t be able to get the products they rely on for sales – very similar to what we saw with toilet paper for example. Americans weren’t going to the bathroom more often, they were “buying up” toilet paper to ensure they didn’t run out and ultimately be left high and dry. So now you have an even bigger problem as the increased demand is on top of the container shortage. This in turn causes even bigger price spikes and the cycle continues.