Why has the price risen for new and used Shipping Containers?
2020 Q3 and 2021 Q1 saw the fastest increases in shipping container prices on record, with many inside the industry being caught out by the speed and severity of shipping container price increases. In this article we detail why, and when we hope and expect things to return to normal again.
Why have prices risen for Shipping Containers?
Put simply, shipping container prices have risen due to a classic ‘supply and demand’ squeeze from all directions which could easily be called a ‘perfect storm’ of issues. There is supply restriction in china, there is difficulty moving containers into Europe and the UK, our used container supplies are also restricted due to current owners wanting to keep their old containers and continue to use them, rather than sell them off. At the same time as all of the above, we are seeing a very strong retail demand for shipping containers.
In essence, we are calling these ‘supply, supply, supply and demand issues’!
Supply of One trip (new) Containers direct from the factory
Over the past 15 or so years, the majority of container production has been consolidated in China where well over 90% of all new shipping containers are built. After the last recession, circa 2008 demand for shipping (and subsequently shipping containers) was very low which eventually lead to rock bottom shipping container prices. This was unsustainable for producers as they experienced a number of years of losing money on every shipping container produced in their factories.
To help relieve the low-pricing issue and reduce costs, the factories began working to reduced shifts. Many dropped their 24-hour production lines down to 10 hours of production per day. This led to a restricted supply of containers, but it has taken a few years for demand to catch up and exceed supply.
The current demand for shipping has risen to record levels. Shipping lines and leasing companies are ordering more containers than ever before, causing shipping container prices to rise to a profitable point.
Wary of their previous losses the factories are increasing production, but only slightly. They are adding just 1 – 2 hours extra hours of production to their current daily shifts. This helps them increase volumes slightly, but this also means that the supply remains restricted. This is likely to keep prices high for longer.
Factory prices in China have risen from approx. US$2000 per 20ft container in January 2020 to $3800 per 20ft container in March 2021, and with no sign of demand easing any time soon.
This spike in demand is the major driver for current increases in shipping container prices.
Supply of one trip containers into the UK and Europe
Once the containers leave the factories in China, we need to move them to the UK to be sold. To explain simply – when we have 100 containers ordered and built, we will ‘give’ them to a shipping line and they move them into the UK for us with freight inside the containers. They deliver the freight to their customers, and then they drop our empty containers into our depot.
Usually, this is a nice and simple ‘win-win’ situation. We get the container moved into our depot for free (or nearly free) and every container the shipping line moves out of China into the UK, means one less empty container for them t0 ship back again. This system works well because as a country we import more goods to the UK from China and Asia than we export.
However, the Coronavirus outbreak meant that the shipping lines were left with all of their own containers in the wrong locations all across the world. This created a bigger priority for them to deal with. Therefore, over the past year, we have seen a ‘feast or famine’ situation with shipping deliveries from Asia. While the shipping lines have their own containers to move, they aren’t interested in moving new containers instead. This may last a few months until the lines realise they are short of containers in China and want these one-way new build shipping containers to fill their boats. In the space of a week, we’ve seen many hundreds of containers get gobbled up by the shipping lines and loaded for shipment to Europe.
Supply of used shipping containers into the market
Used shipping container supply versus new container production is very simple to explain. All of our used shipping containers come from shipping lines and leasing companies. these leasing companies specialise in buying large fleets of shipping containers, which they lease back to a shipping line. These companies all work to a huge scale, which means they can offer the shipping lines a level of service that the lines want to see, to the point that the majority of shipping containers globally are now owned by leasing companies rather than shipping lines direct.
However, the supply is pretty straightforward. Once containers are too old or not deemed viable to keep running for use as a cargo-carrying unit, they are sold off to traders like us. We buy a large batch of these and split them up into single sales for our customers.
However, when demand for shipping is high, the owners of container fleets have demand from their main customers to keep shipping containers on hire. Because of this recent massive spike in demand for shipping goods around the world, we are seeing a huge drop off in our supply levels because the regular drip-feed of supplier containers has all but stopped. This also makes buying in for someone like us a lot harder because there is a much higher proportion of poor condition containers being touted for sale, simply as they have been damaged and are no longer viable to repair to a useable standard.
Demand for Shipping
The Coronavirus pandemic has had many effects on the industry that we will discuss in this post but the main one we saw was the total shut down in china Q1 2020, which lead to a major ‘imbalance’ in global container stocks (in oversimplified terms – all the containers were in the wrong places around the world!) As China’s factories began returning to work with demand at a record high, they found themselves short of empty containers because all of the existing empty containers were still stuck in locations such as Europe and the USA, waiting to return to China to get loaded again.
As shipping demand has exploded, any dormant or parked-up vessels that could not find work before the pandemic are being snapped up at record prices. We also have a new wave of super-large container vessels hitting the seas. All of these new boats have created a need for many more shipping containers ‘within the network’ to keep them full. As a very rough idea, a shipping container vessel needs approx. 3-4 times it’s capacity in empty containers for it to run efficiently (again this is an oversimplification – but if a vessel is carrying one load, it wants another full load of containers waiting for it at its destination, and it has also just dropped another load of containers into the port it has come from).
In addition to this, the sudden spike in demand, and the coronavirus itself have caused many localised congestion issues around the world. Recently this has been best documented in trade heading from Asia into the USA, with up to 40 vessels waiting for an average of over 1 week to be able to berth at west coast USA ports.
Staff at these ports have also been physically affected by the virus, so they are running their daily operations with fewer key staff – this has a knock-on effect on their productivity.
This situation can have a massive effect on the available container fleet. If 40 vessels are each carrying 10,000 containers, and it takes 8 days to dock rather than the normal 2 days, then to service goods going from China to the USA and back on direct service, will take twice as many boats and a lot more shipping containers than normal – all to simply keep the same volume of freight moving. We can see from this example that around 400,000 shipping containers are sitting waiting to dock in the USA, but it also now takes longer to get those containers from the port to a warehouse and back to the port. Therefore, it is very likely in this example there are another 100,000-200,000 shipping containers wedged ‘in the system’ within the USA that were never needed before.
Given there are approx. 18 million shipping containers ‘in service’ (being used to move freight) one can’t go to market and gobble up a further 500,000 containers to help service one trade route without causing major knock-on impacts to the rest of the world.
In the UK and globally we are seeing a large spike in demand from customers for shipping containers. We service a huge range of industries and individuals with a wide range of solutions, so it is near impossible for us to identify any one particular sector or industry that is responsible for the increase in demand, we are honestly seeing it across the board. The best explanation we can offer is that ‘shipping containers become very popular when you change what you do, or if you need to try something new at short notice’ – and we would suggest that many business and other organisations have faced this kind of challenge over the past 12+ months.
We have seen strong demand from a lot of sectors, and a large increase in orders for custom converted and modified containers, as well as a lot of container requests for emergency PPE supplies.
Has BREXIT affected shipping container prices?
On the whole – no. Brexit has had no quantifiable effect on the flow or pricing of shipping containers that we have seen.
Brexit has mad a minimal if any impact on the flow of shipping containers. If anything container traffic to and from the EU we expect may have increased slightly as some supply chains are putting some or all of their freight from the EU to the UK in containers rather then sending fright on trailers through ports like Dover.
We suggest as normal, general supply and demand peaks, the factory price for new containers, the US$ to UK Sterling price, and the price of steel are all more important factors with shipping container prices.
Will prices return to normal – and when?
Much like predicting future oil prices, if we could guarantee future commodity prices with certainty, then – no offence! – but we could make more money speculating on the market than actually selling shipping containers to customers!
We can make no firm guarantee but below we offer our best suggestions on what we think will happen.
- We believe that the market is overcooking. Prices for new containers ex-factory are around 75% above average, and demand in the shipping industry for containers, but also container boats is the highest anyone has seen before.
- Whilst short-term peaks in demand are being realised, and short to medium-term capacity issues (congestion) are causing an additional knock-on demand for shipping containers. Both of these demands will ease off over time.
- When demand eases, owners of used containers will have more containers available for sale, and there is a good chance these same leasing companies and shipping lines will also start reducing their future orders with the factories.
- We are seeing many predictions that shipping container prices will remain high in the factory until at least the end of 2021.
We have every reason to believe this to be the case with the current demand picture, but we will add – as is the case in any commodity market – those offering predictions on the future prices often have a commercial interest in the pricing, and advice at times may be driven in part by that entity’s commercial interests. There are genuinely very few experts with a good picture of the future commodity pricing that doesn’t have some form of vested interest in the outcomes (including ourselves).
However, we would highlight that we expect any market to be very competitive.
Will Shipping Container Prices Crash?
Once again, we can only offer you our best guess, but our expectation is – No. Prices will not crash in the short to medium term, and are more likley to ease off slowly over a period of years.
Any price crash for used shipping containers will ordinarily involve large volumes of stock being ‘dumped’ into the resale market. Any price drop on one-trip containers will involve a drop in demand for factory order books. Also, the US$ price and the price of steel also play a part here in the UK Sterling price paid from shipping containers.
Right now factory order books remain very strong, and demand for iron ore and steel are strong too.
Used containers are unlikely to see a large dump of stock into the marketplace. A lot of leasing companies (who own about 60% of the international fleet of shipping containers) now have very strong demand. If they have any containers that are due for sale in a year or two, they are selling them off now if they have an option, as they can sell them for very good money (likely for more than they will sell if they hold onto the asset for 2 more years and keep it on rent in the meantime). Alternatively, they are putting them back out on a new leasing contract for a typical 5-year contract with their customer. This will result in fewer used containers coming into the marketplace in coming years, but this may also suggest if a crash is going to happen, we expect this may be a risk to the market in a number of years and not in the next 3-6 months.
So is now a good or bad time to buy a shipping container?
This depends on your circumstances and any other options available.
if you need a good quality secure storage unit, shipping containers will usually represent very good value versus other options regardless of current shipping container prices. Usually, customers’ needs will often outweigh any benefits from waiting until prices drop a little.
If you are not in a rush for your shipping container and can take something any time over the next 12 months, then we believe you may benefit from deferring your purchase for a few months. But we make no firm guarantees here.
If shipping container prices ease slowly rather than crash, (this is what we believe is most likely to happen) then our experience is that these prices will ease off very slowly over a year or two and not crash over a period of weeks or months. This is what happened after the market crash in 2008 – when prices eased off steadily over an approx. 5 year period.
Our main assumption in this article is based on ‘things returning to normal’. The coronavirus pandemic has caused major issues for every industry worldwide and the shipping industry is no exception.
If this virus or any other external factor returns to the point where some regions may experience major port congestion, or if major industrial areas need to go into lockdowns again, then the current high demand for containers and related pricing may continue for a lot longer. Much of the lack of availability of shipping containers has been tied to the disruption to supply chains experienced by this virus. A mutation of the virus beyond the protection of current vaccines or a new pandemic would easily put the shipping industry back to needing many more shipping containers. This in turn pushes container availability down and prices up.
There is also a major issue brewing in the shipping industry itself – vaccines. Currently, vaccine rollout is by country. many seafarers come from a mix of countries, but often developing countries. There are potential major issues brewing here over the treatment of seafarers and we believe that governments worldwide need to sit up and take this issue very seriously. Seafarers need to be able to leave the vessel when they dock and some counties may introduce laws preventing this if the seafarers have not been vaccinated. There is a balance to be struck between a territory’s right to protect its borders, its need for freight from global partners, and the need to allow seafarers a basic level of human rights and to be allowed off the boat occasionally for shore leave and to let them source basic provisions.
We hope our explanations can provide a clear understanding of the current situation around the demand and supply of shipping containers across the globe. Our team has worked throughout the pandemic and we are always available to assist with your container purchases so please do not hesitate to get in touch.
Budgetshippingcontainers.co.uk offer the UK’s largest online range of shipping containers for sale with a nationwide network of storage and conversion yards and crane equipped delivery vehicles.
If you need a shipping container feel free to browse our online range of shipping containers for sale, which also includes our ranges of flat pack sheds, container canopies and more. You can also call us on freephone 0808 1234 215 any time 9am – 7pm weekdays and our team will be happy to discuss your requirements. Alternatively, you can use our online shipping container quote form or request a telephone callback. In both cases we aim to get back to you within 1-2 working hours (may take longer for more detailed quotes).