Explainer: why has the inventory of empty shipping containers built up in Australia?
Unfortunately, right now, empty container parks and empty container holding spaces in New South Wales have become chock-a-block with empty boxes. Even port precincts have become extra-busy and port operator NSW Ports has quite rightly imposed control measures to preserve safety. Empty container management is also becoming an issue elsewhere around Australia.
What is at the heart of the problem?
COVID is at heart of the problem. Deprived of holidays, socialising with friends and nights out, consumers around Australia (and indeed, around the world) have gone on a massive and frenzied retail therapy bender.
Because the demand for goods has gone into orbit, the demand for shipping services and for containers has, likewise, gone into orbit. To give you an insight into just how much demand has increased, at the beginning of 2020, the world’s inactive containership fleet was about three million TEU. But by the beginning of 2021, that inactive fleet had pretty much returned to work; ocean shipping companies are chartering multi-purpose ships (i.e. non-specialist ships) to cope; shippers are having difficulty booking space and equipment; and the word’s just come in that the demolition market for containerships has evaporated.
Meanwhile, this time of year coincides with the major Chinese holidays and normally there are lots of blank sailings announced as carriers try to match supply with reduced demand. The numbers of blank sailings have slumped compared to previous years, which is yet another indicator of extremely robust demand.
OK, so demand is up, but more business is generally thought to be a good thing. So why all the problems?
Booming business causes its own problems. Consignors and consignees, importers, exporters, forwarders and shippers may all experience difficulties in booking space on ships, delays, rising freight rates and generally encounter difficulties in getting product to where it needs to be.
Demand for goods (and therefore cargo) is dynamic i.e. demand rises and falls. But the infrastructure to handle the flow of goods, in the form of shipping containers, ports, terminals, ships, underwater access channels and turning basins, cranes, hard stand and so on, is comparatively static. Yes, more equipment and infrastructure can be built but it takes a lot of time and money to do so. Just think about how much time, effort and cost would be needed to build another Port Botany, for instance.
A massive follow-on issue is the management of empty shipping containers. All around the world, empty shipping containers are in the wrong place. They are in the countries that receive cargo, like Australia. They need to be in the places that send cargo, like China.
But why is empty container management a problem? Surely if someone brings in a ship with say, 2,000 containers full of goods, then the same ship can take out 2,000 empty containers, right?
No, that’s wrong, sorry.
Australia’s box trade basically doesn’t balance. Or, to put it another way, just because a box full of goods is brought into Australia does not mean that an empty box goes out. Empty shipping containers can stay for quite some time in Australia before they are “evacuated” (i.e. exported) back to the world centres of manufacturing for re-filling with goods.
Why, then, isn’t there a one-for-one exchange of boxes? And why, particularly, is it a problem now?
Great questions. There’s a couple of things about the nature of Australia’s trade that need to be understood first.
Firstly, Australia has an imbalanced container trade. Lots of full containers enter the country and lots of empty containers go out. Not all export containers are empty though. For instance, about 61% of containers exported at Port Botany in 2018 were empty and 39% were full (see “Quay Conclusions” p16, by KPMG, 2019).
We have an imbalanced trade because many of the consumer goods we buy, such as retail goods in supermarkets or in general department stores, are made in part or full overseas but are sold here. About 6% of the Australian economy is based in manufacturing, according to the Reserve Bank of Australia, and comparatively few containerised products are exported. Australia therefore tends to end up with more empty containers than it needs to help export goods.
The second factor is that full boxes nearly always take priority over empty boxes. There are good reasons for this. Trade accounts for just under 46% of Australia’s gross domestic product. Trade is utterly essential to our nation’s economic vitality. Because of that central role of trade in the economy, full boxes come first. Think about it – would you want our supermarkets, retail and department stores to run short of stock? We’ve seen what happens when goods fall into short supply and the consequences aren’t good.
We should also remember that boxes full of cargo are somebody’s products for export and are somebody else’s valued stock for sale. Business survival, growth and jobs depend on these goods getting to their destination on time at the least cost.
Imbalanced container trade. Full boxes come first. Got it. But why does that mean empty boxes are building-up in Australia?
Well, in and of themselves, they don’t. For the vast majority of the time Australia’s logistics chains handle a massive flow of containers so efficiently and quietly that huge cargo volumes pass by largely unnoticed.
The massive demand for goods (and therefore shipping containers) that has been induced by the pandemic is throwing everything into disruption. There are “current situation-specific issues” that are causing disruption and there are the “happens-all-the-time” factors, which contribute to disruption.
Current, situation-specific issues first, please!
Ocean shipping companies are working – at great cost to themselves – to help alleviate the build-up through evacuating record numbers of containers. Essentially, shipping companies are bringing empty ships (called “sweepers” or “extra loaders”) to Australia and are loading empty containers onto those empty ships to evacuate empty boxes.
Or, at least, shipping companies are trying to.
Hard constraints imposed by infrastructure capacity limits
Ports and terminals are key infrastructure and they’re inherently limited by how fast their cranes can move boxes, by the amount of ships that need berthing, by the available berth space, and by the hours of the day. At the end of the day, a terminal inherently only has the capacity to do so much in a given time. That’s not a criticism, we’re just pointing out the fact that everyone is subject to the constraints imposed by infrastructure capacity limits.
One of our members recently wanted to bring in an extra loader, which is a huge cost, only to be told that there was no space / time / slot to berth the extra vessel. The company will have to wait until March.
Pro-forma container exchange
Meanwhile, ships and stevedores agree to what’s called a “pro-forma” for container exchange. The shipping company agrees it will send a ship with a given number of containers onboard. The stevedore agrees to unload a certain number of import boxes from the the ship and then to load a certain number of export boxes back onto the ship in a given time.
Container terminals are very busy – even congested – at the moment. Unloading and discharge has to be done in, and on, time because there are always more ships waiting. Remember, Australia has an imbalanced container trade and full boxes / ships get the highest priority. Empty boxes, and ships carrying empty boxes, don’t.
Stevedores are reporting that, where they can, they are trying to work above pro-forma and to not limit container exchange. There’s nothing that can be done to boost this – terminals have their capacity limits like everyone and everything else.
A note of caution: calling for more sweepers and loaders is futile
Shipping Australia does caution against giving undue attention to arguments that all the problems can be solved by the shipping industry simply by putting on more empty loaders. If there are no, or few, berth slots available then extra loaders and sweepers physically cannot be brought into Australia to evacuate empty boxes. Calling for extra sweepers and loaders is futile as and until there are berth slots available.
Late container hire charges
Likewise, there are a lot of calls at the moment for a blanket suspension on late container hire charges. A blanket suspension would not solve any empty container management issues and, without a financial incentive to return boxes, could make them worse.
Ocean carriers are reasonable and are willing to discuss and take reasonable steps in relation to container hire charges. Anyone affected should discuss late container hire charges with the carrier in question. And remember, it’s a free market. You can read more at “Container Hire and Late Return / Detention Charges”. Meanwhile, businesses that are potentially subject to late container hire charges can take various steps to protect themselves such as by passing on charges to their customers.
Ultimately, many of these problems will resolve when demand declines and that’s likely to happen when the pandemic starts to decline.
And what about the “happens-all-the-time” factors?
There are a wide variety of reasons why Australia can have a built-up of boxes, even outside of a pandemic-induced surge in demand.
Limited working hours of trucking companies
This is probably the biggest, day-to-day, all-year-round, factor that hinders the smooth movement of empty boxes. After ships deliver full boxes to a terminal, trucks take the boxes to their ultimate destination and either return empty boxes back to port or deliver them to an empty container park.
However, there is a basic mismatch in working hours: ocean shipping works 24 hours a day, everyday. Trucks work from six or seven a.m. to about three or four p.m. and they usually don’t work on Sundays. That’s not true in every case – there are some trucking operators who work into the evenings and and weekends – but most don’t.
So, if ships are importing large volumes of boxes all the time but trucking operators are not matching the same working times as ocean shipping operators then, inevitably, there is an imbalance in the movement of boxes.
That leads to long queues of trucks at the gate to the empty container park or the seaport, much to the annoyance of local residents, and a surge in volume can lead to parks being congested. Trucking companies complain about being redirected from one park to another. If trucking companies spread the load over longer hours then it would help alleviate the problem.
However, we know from experience that trucking companies generally refuse to deliver empty boxes to empty container parks in the evening. Empty container parks have trialled late evening opening but trucking operators did not avail themselves of the longer hours and so Empty Container Parks no longer offer these later hours.
Boxes are sometimes transported large distances overland
In Australia, some consignees (the people to whom a shipper sends cargo) live and work many hundreds of kilometres away from the nearest port. Just getting boxes to and from remote communities takes time. If there are large volumes of boxes being sent to remote communities then it can take a long time to get the boxes back. Remember that the transport of boxes is not necessarily distributed in an even volume… at different times of the year there can be large volumes being moved to different place which can lead to bunching and backlogs of empty boxes.
Container free time
Ocean shipping containers normally (but not always) belong to ocean shipping companies. Shipping lines grant shippers and consignees a certain amount of free time (time without charge) to take possession of the shipping containers for the purpose of unloading. Although the granting of free time is considered to be a necessary part of the supply chain, it nonetheless delays the return of empty boxes and can contribute to a build up of empty container volumes in Australia. We’re not calling for reform in this area – we’re just explaining how an empty box backlog can form.
Random events – bad weather, industrial action and the like
Unfortunately, there are some aspects of life that are near-random and just cannot be controlled. Bad weather such as heavy rain, heatwaves, strong winds and high swell can all hinder maritime and cargo operations. Extensive industrial action in 2020 contributed to a backlog of empty containers in Australia.
Some empty box inventory is necessary
Shipping companies will generally keep a stock of empty boxes available, even in destination countries like Australia, to service a backhaul export trade. As mentioned above, about 39 per cent of boxes exported from Port Botany in 2018 were full. Shipping companies even import small volumes of empty containers for the purpose of making sure there are enough on-specification boxes available to Australian exporters.
Boxes need to be taken out of circulation for essential works
Containers need to be cleaned, upgraded (e.g. converted into food-grade containers at the customer’s request), maintained and repaired. Taking boxes out of circulation for essential works may also help increase the volume of containers in Australia.
Small disruptions to big numbers equal big backlogs
It should also be realised that we’re talking large volumes of containers. Australia currently handles at least eight million TEU a year. With this kind of box volume, and boxes being transported over large distances, then even small disruptions or surges in demand can have large consequences for the build up of empty containers.
So what’s the solution?