Market price

Oversupply of containers leads to a correction in second-hand market prices

Container oversupply is contributing to falling prices in the used container market, Container xChange said in a recent analysis.

Christian Roeloffs, co-founder and CEO of Container xChange, said the current container oversupply situation is the result of a series of reactionary market disruptions that began soon after the pandemic hit in early 2020.

With the increase in demand, congestion at ports has increased and container capacity has been blocked for a very long time, he said.

“This has led to panic orders for new boxes at record highs. Over time, as markets reopen and demand weakens, excess supply is a natural result of demand-supply forces balancing on new levels.”

“The oversupply situation is not a surprise as average container prices and rental rates have declined globally since September-October 2021,” Roeloffs added.

Short to medium term outlook for freight rates, spot rates and container rates

Freight rates have fallen by around 20% on average since the beginning of 2022 and these will continue to fall gradually, but there will not be a massive drop as the underlying disruptions in the supply chain are still there.

Inflation, for its part, has started to strain the US economy and the EU.

With inflation and pandemic-induced lockdowns, disruptions will continue to alter the equation between supply, demand and prices. In the longer term, these will gradually disappear and create a new normal balance of supply and demand.

New data released by Drewry indicates a 6 million TUE excess of capacity in the global container fleet. Container xChange’s analysis further indicates that the oversupply will obviously drive the need for more drop space, which is already in short supply.

And in a scenario where we assume global supply chain disruptions will fade over time, box productivity will be higher and we will need fewer boxes per unit of freight.

“As we see supply chain disruptions easing in the coming months, this will lead to increased box productivity and a structural container overhang. If we also see further easing in demand, this will increase the supply of containers available for freight,” Roeloffs said. said.

There is a strong possibility of a scenario where the equipment ability will not be soaked.

“This situation will lead to tighter depot space, carriers will rush to get rid of older equipment, second-hand container prices will continue to gradually decline to a new normal level, and the new market will dry up.”

The situation can be studied from the perspective of the market forces of supply and demand.

If container demand declines (resulting from lower consumer demand over the next few months given rising inflation which could contribute to negative consumer sentiment), container supply will naturally increase.

Moreover, the price is a function of supply and demand. If demand falls and supply rises, prices will fall. And that’s what’s happening now with container prices, he added.

Container ship delays show signs of improvement

The shape of the high season

“As we have said before, the main factor that has pushed prices up much more than historical levels has been a supply crisis over the past two years due to longer container turnaround times caused by supply chain bottlenecks.”

“That remains true. We still have about 10% of transmission capacity tied up and taken out of the value chain. Demand, on the other hand, has weakened now,” Roeloffs added.

US imports fell 2.4% between March and April. Purchases of goods fell $0.1 billion, as higher imports of industrial supplies and materials (up $1.8 billion) were offset by lower imports of consumer goods (down $1. .5 billion). (Source: United States Census Bureau)

An interesting point is that in the long run, demand for ocean freight is predicted as a multiplier of global GDP growth. And if global GDP does not fall by, say, 5%, global demand for transmission capacity will not fall significantly.

“In summary, we expect a significant increase in pent-up demand in peak season. This will likely keep container prices potentially stable (prevent them from falling further or skyrocketing) in the short term as we get closer to peak season.

“What remains to be seen is how geopolitical circumstances and pandemic-induced lockdowns (e.g., in China) will play out in the months to come,” Roeloffs concluded.

Read more: A 231% increase in imported empty containers boosts Saudi exports