Robert Sappio, CEO, SeaCube Container Leasing

https://seacubecontainers.com/
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Robert Sappio, CEO, SeaCube Container Leasing

The long-awaited correction in US supply chain fluidity is finally beginning to emerge, and despite the declarations of politicians, port officials, and pundits, their intervention had absolutely nothing to do with improvements we will see in the coming months. Any correction can be attributed to lower demand and corresponding volumes. Nothing has fundamentally changed regarding automation, hours of operation, labor, infrastructure, or better collaboration amongst and between stakeholders. We only hit the wave tops and failed to address the tougher issues. The Ocean Shipping Reform Act of 2022 (OSRA-22) also fails to accomplish much, other than shining a light on the need to move US exports. The Federal Maritime Commission (FMC) already had the power to do most of what is only restated in the new act, thanks to heavy lifting by others in OSRA-1984 and 1998. Shippers wanted contract carriage and they got it with OSRA the first time. Did the industry really use OSRA as it was intended, or take the easy path to simple rate and volume agreements?

The last time the United States government truly legislated the country's maritime policy was 86 years ago in the Merchant Marine Act of 1936. It was said to be necessary for the national defense and our foreign and domestic commerce. None of those principles have changed, but we still have a lot of work to do to get back on course. We are a maritime nation and our goals of having competitive, world-class US ports and a vibrant US flag merchant marine should be unwavering. These goals should be underscored by continued support for the Jones Act, the Maritime Security Program, our cargo preference laws, and embracing technology and automation. The US is the biggest international trader in the world, importing and exporting the greatest volume of goods of any nation. Yet, our maritime nation has little or no direct control over the transportation used to move its goods. We ignore these facts at our own national peril.

During the height of the pandemic-driven demand, container shortages made headlines. Ocean carriers and leasing companies acted as the shipping public wanted them to and invested billions of dollars in new containers. In an average year, the industry builds about 2.8 million new TEU; in 2021, the industry built near 7.0 million TEU. The global pool of containers increased to over 50 million TEU, also aided by fewer retiring units. In 2022 we saw a more normal year with an additional increase of 3.5 million new TEU added, again with very few retirements and investment above the industry average. Looking ahead to 2023, we will see limited investments in new dry containers given current fleet levels. The fact that all, or almost all, of these containers are manufactured in China should be the subject of another essay. Every industry aims to have a diversified supplier base and shipping containers should be no different.

The challenge the industry now faces is having too many shipping containers in the global network. An oversupply of shipping containers may be manageable — after all, the orderbook for new vessels is at record levels. Furthermore, decarbonization goals will drive slower steaming and increase the need for more containers. As such, many of these containers are expected to be absorbed into the global network. However, too big a global container fleet will be expensive and inefficient. New container prices have already dropped more than 50% from their 2021 elevated levels, and resale prices of older containers are also falling quickly. Depots around the world are congested and will get worse, and worldwide network fluidity will suffer. The one bright spot continues to be refrigerated equipment. Refrigerated container production increased, but never to the outsized levels that dry containers did. Demand for refrigerated containers continues to prove to be far less volatile through the cycles — people have to eat.

The global network proved to be resilient last year; however, ocean carriers, container leasing companies, and all stakeholders face a challenging 2023. Dramatically falling freight rates, rising operational costs, increasing environmental and regulatory costs, and port and depot efficiency challenges will still be with us. Our industry is certainly cyclical, but most definitely not anti-competitive, as some have posited.