Indian Transport & Logistics

Oversupply leading to price correction: Container xChange

Average container prices & leasing rates have been declining globally since Sept-Oct 2021.

Oversupply leading to price correction: Container xChange

The oversupply of containers is contributing to the decline of second-hand container prices, according to the latest update from Container xChange.

"The current situation of oversupply of containers is a result of a series of reactionary market disruptions that began soon after the outbreak of the pandemic in early 2020," says Christian Roeloffs, Co-Founder and CEO, Container xChange. "With the rise in demand, congestion at ports increased and the container capacity was held up for a considerably long period of time. This led to the panic ordering of new boxes at record levels. With time, as markets reopen and demand softens, the oversupply is a natural outcome of demand-supply forces balancing at new levels. The oversupply situation does not come as a surprise because the average container prices and leasing rates have been declining globally since Sept-Oct 2021."

Freight rates have come down by approximately 20 percent since the beginning of 2022, and "these will continue to slide gradually but there will not be a massive decrease because the underlying disruptions in the supply chain are still there." Inflation, for one, has started to create stress on the U.S. and the E.U, the report said. "With inflation and pandemic-induced lockdowns, disruptions will continue to change the equation between supply, demand and prices. In the longer term, these will phase out and create a new normal balance of supply and demand."

Data published by Drewry indicates an excess of 6 million TEUs of capacity in the global fleet of containers. Container xChange analysis says the oversupply will obviously lead to the requirement of more depot space which is already scarce. "In a scenario where we assume that the global supply chain disruptions will fade away with time, there will be higher box productivity and we will need fewer boxes per unit of cargo. If we also see further softening of demand, this will increase the supply of containers available for cargo.

There is also a high possibility where the equipment capacity will not get soaked, says Container xChange in its update. "This situation will lead to tighter depot space, carriers will rush to get rid of their older equipment, second-hand container prices will continue to slide gradually only to reach a new normal level and the new market will dry up."

Peak season outlook
The main factor that has driven up prices, according to Container xChange, "has been a supply-side crunch over the past two years because of lengthening turnaround times of containers caused by supply chain congestion. That still holds true. We still have about 10 percent of transport capacity tied up and removed from the value chain. Demand, on the other hand, has softened now.

"We foresee a significant rise in pent-up, peak season demand. This will likely keep container prices potentially stable (prevent them from falling further down or skyrocketing) in the short term as we inch closer to the peak season."

What remains to be seen is how the geopolitical circumstances and the pandemic-induced lockdowns (for instance, in China) play out in the coming months, the report said.

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