INDUSTRY INSIGHTThought Leadership

Where did all the containers disappear, and are they coming back?

By Stuti Chawla, Kristen Hays, Heng Hui and David Lademan, S&P Global Commodity Insights

At the end of 2019, when the coronavirus was just beginning to come into focus, no one could have predicted how disruptive it would be to the global economy and to the petrochemical and freight markets.

It would be an understatement to say that the last souple of years have been unusual for container shipping. There was an unprecedented rise in container freight, an unforeseen imbalance in equipment shortage, a record number of blank sailings, far more port congestions, and the list goes on.

Shippers were scrambling for containers and if they did manage to find a container, then began the struggle to find a ship willing to load it. And the mayhem is far from over.

This severe equipment shortage has predicably led to the sky-high container rates, particularly on routes originating in Asia, which in turn has changed polymer trade flows globally.

In many cases shipping freight made up to 20% of the total deal size for cargoes originating in Asia –something that was unheard of earlier. Asia polymer freights had risen more than fourfold since 2020, according to S&P Global Commodity Insights data.

And it wasn’t just container or vessel shortage, adding fuel to the fire were port congestions and a sharp drop in schedule reliability.

Cargo delays stretched up to two to three months, and in many markets, producers selling on the CFR basis have been asking for longer LCs and shipping schedules of two months or more because they aren’t sure about delivery.

The status now

Two years on, the container trade remains heavily imbalanced as ocean carriers look to reposition boxes to north Asian production hubs in a bit to capture high US import revenues. Moreover, current market disruptions are the product not of a global demand boom, but growth largely centered around North America and the US.

This has produced the dual effect of creating logjams in the domestic US intermodal network, while also stymieing US exporters, particularly those moving resin and other chemical supplies.

And the economic forces driving the trade imbalance are clear when looking at the spread between market rates. Platts Container Rate 6 – East Coast North America-to-North Asia – was assessed at USD 1,150/FEU on April 19, while PCR 5 – North Asia-to-East Coast North America – was assessed at USD 11,850/FEU, more than a 10-fold increase against the export rate.

This has had a notable impact on US polymer exporters, who, despite strong demand for their product, have little ability to secure much sought-after export bookings and equipment, meaning domestic warehouses are full even as buying activity in demand locales such as South America, remain high.

Looking forward, S&P Global Commodity Insights analytics forecasts a downward trending rate environment, but the possibility for rate spikes as the market adjusts remains high.

The Americas market is in the historical off-season after the lunar new year, compounded by weak demand out of Asia due to COVID lockdowns, but even so, import volume projections are expected at-or-near record highs at least through July.

Supply chain bottlenecks adding to shipping woes

In the US, the influx of containerized imports, largely from Asia, has commanded already tight supply of chassis and truck drivers as ocean vessels diverted from US West Coast ports to other major resin-exporting ports, including those in Houston and Charleston, South Carolina.

That lack of necessary equipment and labor to move empty containers to packaging warehouses to load polyethylene, polypropylene and polyvinyl chloride and transport those cargoes to ports to load on ships has left warehouses largely full.

INEOS Olefins & Polymers on April 14 declared force majeure on polyethylene and polypropylene manufactured at its five US production sites based on discussions with major railroads that anticipate restricting traffic to clear out clogs in their systems, according to a customer letter seen by S&P Global Commodity Insights. That would limit rail car movements from production plants to packaging warehouses.

However, market sources say the chassis and truck driver squeeze hinders ability to clear out warehouses.

Impact on polymer trade flows

The prevailing container logistical issues means it has taken longer for polymer demand and supply to reach any equilibrium.

Lowered factory shutdowns following lockdowns in China have stoked concerns of escalating port congestions and polymer supply chain backlogs. Inland transportation remained a challenge in China, with delays reported to polymer shipments.

These delays have hampered arbitrage opportunities globally. Polymer supplies from US are finding it hard to reach markets in Europe due to export logjams.

Far East Asian producers too are unable to cash in on the absence of US supplies in Europe and Latin America due to the lockdowns as well as poor equipment availability, space shortage and longer lead times for shipping.

This has led to a disconnect between polymer prices in US, Europe and Asia.

The situation is unlikely to improve for the rest of 2022 unless a recession hits and consumption and imports slow down in North America.

Chinese ports may be shipping out less cargo now because of lockdowns, but it will roar back once those lockdowns ease, and US ports – where most of the world’s logistics holdups are – will get hit with more.