7IM Short Thoughts: Too many containers!
In our latest Short Thoughts, we take a look at a classic story of supply and demand, boom and bust with the global shipping industry once again the focus.
During COVID, there were massive bottlenecks in global shipping. At its peak, around a thousand ships queued outside of L.A. ports just waiting to offload all of the items they had in their containers. Where these containers are concerned, just prior to COVID, on average, it cost around $1200 to ship one of these 40ft containers from Shanghai over to L.A.
Prices spiked, though, didn't they, as we all know. Reasons why – I just talked about the bottlenecks. They jumped up to $20,000 per container, exactly the same container, exactly the same route, but a 1200% increase. That is eye-watering stuff. The thing is, the bosses of these shipping companies during that period of time thought: ‘$20,000 per container? Seems like a good opportunity to capitalize on that and make some money’. So they commissioned more boats.
However, if you've ever seen a picture of one of these things, let alone in person, they are enormous. It takes an awful long time to make them. There is a lot of elbow grease involved and an awful lot of metal. It takes about two years to go from paper into the water. So all of these things were ordered. Seemed like a great idea at the time.
But then two years later, we are forecast to have a global shipping capacity increase by 30%, and just as prices are coming back down to normal. So I think this is just a great example, we talk an awful lot about the self-regulating elements, I guess, of inflation and pricing. It's a really, really good live example.