The Covid-19 pandemic defined 2020 for both ports and terminals, as well as their container line customers. Yet while 2020 will go down in history as difficult for everyone, arguably carriers have been having a very good crisis ― particularly in comparison to the terminals that provide their inland interface. That was not always guaranteed, however. At the beginning of 2020, when Chinese factories were slow to reopen after an extended Chinese New Year closure, there were fears that supply issues would lead to a weak quarter for lines that had only just come out of a mediocre 2019. However, as what was initially thought to be a little local trouble in Asia began to spread around the world, even worse scenarios started to emerge. By the beginning of the second quarter, it was apparent that the impact of lockdowns in the major consumption markets of Europe and the US threatened massive economic disruption.

Casting back for similar events, comparisons were made to the global financial crisis of 2008-2009. By extrapolating what happened to box carriers following that downturn, some analysts warned of the risk of a collective $20bn loss for container lines. The black swan of the pandemic was followed by a bevy of black cygnets that threw most ― if not all ― forecasts into disarray. No-one foresaw that by the third quarter, demand for containerized freight would be on the rise again. And no-one could have predicted that container lines would have their most successful financial year on record. That this should happen in the middle of a pandemic that left most major economies limping and global GDP decreasing by 3.5% says much about the changed nature of container shipping since the last major crisis.

During the second quarter of 2020, when it became apparent that volumes were falling off a cliff, carriers were quick to take capacity out of the market. There was no point sailing empty ships, and previous experience warned of the dangers of offering cut-throat rates to secure volumes. Reducing capacity had become easier for carriers, thanks to their congregation into three major alliances. If a carrier operating on its own had three services on a particular trade lane and wanted to cut capacity, it could pull out one-third, two-thirds, or all its capacity. If the fall in demand was 15%, another 15% was left on the table for rivals. A carrier in an alliance with a combined 10 services had a much finer knife with which to cut. Capacity could be removed from the market in 10% slices, making it easier to reach an equilibrium with demand. Yet these voluntary reductions in capacity were not in place for long, largely due to another surprise to emerge from the pandemic.

With lockdowns in place, virtually everyone was confined to their homes to some degree. For those who could work from home ― which turned out to be far more than ever considered possible ― dining rooms doubled as workspaces. Imprisoned in their homes, consumers who could no longer spend on services such as holidays, eating out or entertainment, started renovating their prison cells. This demand for containerized goods was boosted further by government economic support packages, which in some cases saw cheques going straight to retailers, then on through the supply chain, with the container lines taking their skim for the ocean carriage. By year-end, carriers had shifted only 2.2% fewer containers during 2020 than they had during 2019. The problem was that most of this volume had been moved during the second half of the year ― and a larger part of it than before was going to the US. Towards the end of the year, ports ― where the nature of the job precludes working from home ― were struggling to service the unexpected surge in volumes at a time when they were having to implement rigorous social distancing and cleaning regimes to protect their workers and were also losing workers affected by the pandemic.

Moreover, similar situations in rail, trucking, warehousing, and distribution were further snarling up the usually free flow of containers through the system, meaning boxes were not clearing the ports fast enough. As those who could tucked into their Christmas dinners at the end of December, there were close to 40 containerships at anchor in San Pedro Bay, waiting to unload at Los Angeles or Long Beach alone. That slowdown in the movement of containers led to a shortage of boxes. The period when a container was in use increased by four or five days. For a large carrier, one additional day in the average time containers are used can mean a shortfall of 35,000 containers. So, while there was no actual shortage of containers, there was a container shortage. The slowdowns at ports also meant a return to blank sailings. A ship stuck in Long Beach for a week would be late back to Asia and, rather than run with ever-later ships, it made more sense to just blank the next sailing.

Again, there was no shortage of ships; every available vessel that could be begged, borrowed, or chartered was deployed ― at increasingly great expense, much to the delight of tonnage providers. The logjams were not a matter of container equipment or vessel capacity; nor were they really a matter of port capacity. They were the result of a sudden, unexpected, and unforecastable surge of volumes into the US. Globally, volume growth from April 2019-April 2021 was a mere 2%. However, the shortage of containers, along with bottlenecks in terminals and inland operations, has now spread all around the world, showing quite how interdependent the supply chain is. Demand now far exceeds the constrained supply. And any market trader will know that when demand is greater than supply, prices rise ― which is exactly what happened to container freight rates. In late August 2020, the Shanghai Containerized Freight Index was reporting Asia-Northern Europe rates of less than $1,000 per teu. By year-end, that figure had hit $4,000 per teu. It is now more than $6,000 per teu.

The disruption at ports and congestion in the supply chain has been hugely profitable for container lines. Yet many would be prepared to give up a few dollars of profit for a return to some semblance of normalcy. Carriers, too, would like to see their products being available and reliable. Rates, inevitably, will come back down, but it may be some time before they do. Shippers will have to adapt to a new reality where container lines are able to maintain rates at levels that are profitable, which was not the case for most years in the decade leading up to the pandemic. How long it will take to get the backlog of demand through the system remains to be seen. It is unlikely to be before next year’s Chinese New Year Holiday, which will mark a two-year anniversary of the pandemic starting to have an impact on container shipping. Ports will have a role to play in that recovery to the new normal. Success in achieving that will have a role to play in how well those ports perform in the future.