Free trade based on the doctrines of early classical economists like Smith and Ricardo holds ground even today. For wealth creation, it is necessary to have free trade with minimal governmental intervention. Wealth creation stems from the comparative advantage that each country holds in certain goods over other goods. Even today maritime trade comprising of exports and imports is a mandate and a norm rather than an outlier.
The pandemic has disrupted an average citizen’s everyday life, for many above the poverty line, these disruptions are negligible and ignorable. However for thousands if not millions belonging to the borderline salaried middle class close to the poverty line, the pandemic has thrown them back to absolute poverty, what years of policy intervention and efforts to escape poverty were undone by a pandemic.
To draw a parallel, a sector that was badly affected was the shipping sector. Shipping sectors are the arteries of world trade and wealth creation. This was evident from the 2021 Suez Canal Container obstruction by the massive container ship Ever Given which caused billions of dollars of loss of trade for ships across the globe.
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Pandemic Induced Crisis in Shipping Sector
Business outlook to global shipping market looks grim due to the pandemic. Exporters from Asia are complaining that wait times to find a shipping container can stretch up to three weeks. Exporters are being quoted exorbitant freight rates by carriers that don’t honor contracts. A 40 feet container before the pandemic to the US from India, cost around $2000, with the onset of the pandemic and the disruption of the supply chain the same saw a twofold to threefold increase.
The numbers are more astonishing in the African freight market. Western African market saw a threefold to fourfold increase in freight rates.
Reasons Behind Shipping Sector Crisis
There are a plethora of reasons being attributed to the shipping crisis. Primary causes based on preliminary analysis by analysts are the following. First, disruptions to the supply chain are caused by the pandemic. The pandemic has completely usurped the well-oiled and developed machinery of the supply chains existing across different nations. The supply chain is functioning in a haphazard manner on a macro level and needs to be fine-tuned once the pandemic subsides.
The second reason is the shortage of containers. Shortage of containers available on lease, again as a result of the supply chain disruption has adversely affected the transport of exports from countries. New and emerging countries that primarily export, relatively more perishable items, as opposed to their counterparts who export durables, were affected more, during the pandemic.
The third is many governments across the globe adopted autarky state strategies in hopes of minimizing the effects of the pandemic in the initial stages in response to minimize the exposure to the virus. This caused great hardships in the Shipping Sector and adversely affected the shipping sector.
Fourth in the second half of 2020 and the first half of 2021, there was a resurgent demand for goods such as medical equipment, home office supplies, and computer equipment. This has forced many nations to import the above-given goods from China. However, as a manufacturing hub, rebounding from months of suspended trade, there was a huge trade market imbalance in China. For every container imported to China, they were exporting 3 containers.
It is expected that the majority of the world’s trade occurs in 170 million shipping containers accounting for about 9 in 10 volumes of trade. However, the pandemic has caused huge labor shortages across countries, reduced capacity in logistics systems, congestion at ports, and cargo that is quarantined.
Finally, Business Outlook and investor confidence across exporters in Large and Medium enterprises have significantly reduced. Market analysis suggests this haphazardlybe only a temporary disruption and the market will get up and running sooner or later.
Major Shipping Container Companies
- Moller- Maersk is the biggest shipping container company at the moment by TEU capacity. It is followed by Mediterranean Shipping Company and COSCO Shipping lines. These are the major players in the shipping containers market.
The immediate future
Alibaba Group’s Cainiao has launched its own container booking service and it serves both air cargo and sea cargo. It is well integrated with more than 200 ports spanning 50 countries. It aims to reduce the existing backlog of empty containers.
A spokesperson from Maersk, the largest container shipping line opined that this is only a temporary situation and the business outlook will improve soon. Market analysis also suggests that the shipping market be buoyant and resurgent.
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