Sept. used to be in the peak month of the year to shipping Lines and leasing companies in the container utilization. Each leasing firms have still been maintaining around 98% of utilization ratio. However, container demand seems to have lost momentum and have already been stable. Leasing companies have been receiving delivery of Sep production from container maker. It is said that all production coming have been committed under long term lease and shipping lines have just been waiting for their committed new production. We just wonder if Chinese container makers don’t expand their production capacity under such strong demand. However, the thing is not simple like that. Chinese maker used to quote the container price 3 months before, even under strong chance of market caused by external factors such as increasing steel price etc they could quote one month before in the past. At present major leasing companies have been facing difficulty to get the price from them one month before. They are still waiting for Oct price from maker because they could not quote it two weeks before.
Why couldn’t they quote?
Why couldn’t they expand their production capacity under strong demand?
Difficult to secure the steel panel?
Shortage of parts?
Less manpower?
Not many skilled workers and so on?
However, these explanations sound hardly understandable because they have experienced many similar situations in the past. They could manage successfully anyhow. Thus, their attitude or management looks incomprehensible.
About 20 years have passed since container production started in China. Container price would be subject to the market. Container demand reach peak in summer and shipping lines try to place an order for container of own and long term container to receive in summer by all means. In the meantime, container maker would offer the lower production price in case of order in winter time to stimulate more order in slow demand season. However, cargo movement to Europe/North America has been stable through the year to great extent since in middle of 1990s supply chain management, just in time system (like Kanban system of Toyota) has been adopted in global cargo movement As a result, shipping lines and leasing companies have taken the lead in placing an order in winter to secure the containers in lower price. Most shipping lines and leasing companies used to place an annual order of container at the beginning of the year after 2000. Shipping lines has been aggressively placing an order for own container to cope with their larger container ships in 2006. Chinese container makers have been expanding their production capacity to meet with this requirement.However, Chinese container makers encountered the overcapacity in the following year after they expanded their capacity to catch up actual demand like after ILWU strike of US west coast, in 2002, shortage in Asia caused by poor infrastructure of Los Angeles, Long Beach and Rotterdam in 2004. The container prices have been fluctuated in the range of between $1400 and $2000. However, container demand has been in uptrend since middle of 2001 till Lehman shock in 2009.
On the one hand, Chinese container makers have contributed a lot to shipping lines and leasing companies. In addition, it has brought immeasurable profit to the world trade, cargo movement. The cargo movement of the world would be not developed much and manufacture commodity would be more expensive without the flexibility of Chinese container makers in production capacity and price.On the other hand, it was the fact that Chinese maker tried to gain the initiative on pricing. They might have too much confidence in themselves till Lehman shock like they advanced the production of higher price which were placed an order later if the price was higher than the earlier order. They even forced customers to accept the higher price by all means. Their attitudes like this had been frown at by shipping lines and leasing companies. However, their attitude seem to have been changed since Lehman shock. During one year of 2009 there was none of new production order. Therefore they have been nothing but close or shrink their production capacity. They have never been suffering from such damage in their history.
Leasing order from shipping lines have been resumed in Sep’9, one year later from Lehman shock. Early 2010 leasing companies have been starting to order the new production to Chinese container makers. The worldwide economic turmoil called “once a hundred year” has come to end. 20f container price of 2010 has been raised from $1800 of Jan to $2800 of Sep. the skyrocketed price hike like this has made most shipping lines to fully rely on leasing companies for long term lease of the new production. In the meantime, promising recovery of cargo and success of freight rate hike have encouraged shipping lines to add more ships in the market and reinforcing fleet of containers in their system while Chinese container makers seem to have been quite pessimistic for expansion of their production capacity. This is why they have learned from their past experience.
It is their last proposition of how they could make profit through container production. it is quite speculative if the price is up and down during 50% for short period according to the past example. Viewing from different aspect of container the containers are the necessity of the world transportation. It is said that cargo could not be secured without container. Over 90% of container production has been made in China. If we venture to say it would be no wonder that Chinese container makers (replaceable with Chinese government) try to challenge to the world by adjusting container price and production in order to make their presence felt in the container manufacture. There might be many people felt political involvement.
Shipping lines also have an problem toward the end of the year. It is mega container ships of over 10,000 teu to be introduced from now to the next year. “ Hanjin Korea of the first mega container ship in Korea was put in service in their Europe trade in July after delay of Feb delivery. The remaining 4 out of 5 mega ships will follow by the end of 2010. In addition majority of 20 mega container ships to be planned in service of Europe trade within this year. However, there still exist many mooring container ships which have helped to adjust surplus container ship space. Shipping lines have been successful in securing the additional peak season surcharge under feeling of tight container ship space and continuous shortage of containers in Asia. However, there are many uncertainty in coming seasonal slow month such as possibility of slowdown in USA economy, many mega container ships to be put in service intensively. Shipping lines have continuously applied to their ships under ESS(extra slow streaming). Therefore, their fleet will be surplus or short in coming slow season which is the problem.
In China there are still strong demand for 2nd hand containers. It is said the sales price of $3000 per d2 would be normal. However, old containers especially extended life of 2~3 years after repair will come to the 2nd hand market in case shipping lines feel their fleet surplus. How much would the 2nd hand container price be at that time? We will continuously have to keep our eye on shipping lines movement.