Lockdown shopping surge in US and Europe causes Asia-Pacific shipping container shortage

LOCKDOWNS in north America and western Europe have spurred a spending spree on Asian goods, resulting in supply chain bottlenecks and shipping container shortages in the Asia-Pacific, a report by IHS Markit has suggested.

The report, authored by IHS Markit Asia-Pacific chief economist Rajiv Biswas and maritime and trade vice-president Rahul Kapoor, said: "Container demand recovery is benefiting from stay-at-home consumer goods imports, which are getting higher wallet share amid consumer demand shifts."

US imports from Asia declined 10.7 per cent in the first half of 2020 compared to the first half of 2019, says the IHS Markit PIERS database. However, it rose 16.9 per cent year on year in the second half of 2020.

Asia-US container volume growth has far outpaced Asia-Europe and Intra-Asia demand, said the report.

These imports include "stay-at-home goods" such as furniture, home improvements and consumer electronics. IHS Markit believes the growth in consumer demand is likely to sustain into H1 2021, rolling over to H2.

However, compared with the Global Financial Crisis, the container shipping industry is in a "much better position" this time to weather the Covid-19 crisis.

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"Industry consolidation over the last few years drove a newfound resolve by the shipping companies to exercise exceptional capacity discipline," said the report.

This has brought the industry's pricing power, which the analysts said has "long been elusive", back "ferociously". Recovery has been swift, exceeding expectations amid consumer demand shifts and a short-lived "demand destruction", they said.

But this demand surge has come at a time when container supply has been scaled back, with container positioning "all over the place" and large bottlenecks have emerged.

"Particularly in the second half of 2020, a shortage of empty containers in key exporting hubs in Asia and a delay in the return of containers to the quayside in the US have led to equipment shortages in key exporting regions and one of the key reasons for spot rates to scale record highs," the report said. It added that surging consumer demand, equipment imbalances and tight supply is driving record freight rates.

This could raise the annual contract freight rate by about 40 to 50 per cent this year, IHS Markit said. However, demand could taper off after the peak in H1 2021, as the dislocation of container boxes and congestion are likely to be resolved eventually.

Meanwhile, the global electronics industry suffered from supply chain disruptions in late 2020 and early 2021.

With consumer spending rebounding in mid-2020 in many major economies, the demand for semiconductors has outpaced production, resulting in a shortage that has trickled to key manufacturing industries such as automobiles, IHS Markit said.

Many automakers worldwide have reported disruptions to production due to shortages of semiconductors, including Ford, VW Group, GM, Honda and Mazda, the report noted.

On the whole, the global economic outlook for 2021 is a positive one, with the world economy expected to gain momentum as Covid-19 vaccination programmes are rolled out through the year, IHS Markit said.

Vaccination programmes in major economies, including the US, the European Union (EU), Japan, China and India, should boost domestic demand and support the strong rebound in exports. It has been forecast to grow 12.4 per cent in 2021, following a 10.3 per cent contraction last year, the report said.

"However, there is increasing evidence that the strong rebound in manufacturing exports has created significant logistical problems, with shipping container costs for Asian shipments to the US and EU having soared," IHS Markit said.

It added that these disruptions to global supply chains, including that for the semiconductor industry, are expected to be temporary, with conditions expected to improve in the second half of this year.