Container crunch upends global food trade while ships queue at U.S. ports

Food is piling up in all the wrong places, thanks to carriers hauling empty shipping containers.

Global competition for the ribbed steel containers means that Thailand can’t ship its rice, Canada is stuck with peas and India can’t offload its mountain of sugar. Shipping empty boxes back to China has become so profitable that even some American soybean shippers are having to fight for containers to supply hungry Asian buyers. Strikes in Argentina have also boosted Asian demand for U.S. agriculture products, adding to competition for boxes.

“People aren’t getting their goods where they need them,” said Steve Kranig, director of logistics at IM-EX Global Inc., a freight forwarder that handles cargoes including rice, bananas and dumplings from Asia to the U.S. “One of my customers ships 8 to 10 containers of rice every week from Thailand to Los Angeles. But he can only ship 2 to 3 containers a week right now.”

China has recovered faster from COVID-19, so has revved up its export economy and is paying huge premiums for containers — making it far more profitable to send them back empty than to refill them.

There are also signs the soaring freight rates are boosting the cost of some foods. White sugar prices surged to a three-year high last month, and delays in food-grade soybean shipments from the U.S. could mean higher tofu and soy milk costs for consumers in Asia, said Eric Wenberg, executive director of the Specialty Soya and Grains Alliance.

While it’s not entirely uncommon for containers to transit back empty after a voyage, carriers usually try to backfill them to profit from shipping rates in both directions. But the cost of carrying goods from China to the U.S. is almost 10 times higher than the opposite journey, prompting liners to favor empty boxes instead of loading them, Freightos data showed.

‘Shortage of everything’

At the port of Los Angeles, the U.S.’s biggest for container cargo, three in every four boxes going back to Asia are traveling empty compared with the normal 50% rate, said Executive Director Gene Seroka. In Vancouver, terminals have shortened the time to transport the stuffed boxes onto ships from three days to as little as seven hours, said Jordan Atkins, vice president of WTC Group.

“It’s not possible to get the amount of volume we have here in Vancouver to return containers in those tight windows,” said Atkins. “Pulses in general are struggling getting on the ships,” he said, referring to crops like peas and lentils. Canada is the world’s second-largest producer of pulses.

India, the world’s second-largest sugar producer, exported only 70,000 metric tons in January, less than a fifth of the volume shipped a year earlier, said Ravi Gupta, president of Shree Renuka Sugars Ltd., the nation’s top refiner.

Vietnam, the largest producer of the robusta coffee beans used to make instant drinks and espresso, is also struggling to export. Shipments dropped more than 20% in November and December, said Le Tien Hung, chairman of Simexco Dak Lak, Vietnam’s No. 2 exporter.

Around the world, some foodstuff buyers are waiting while others have halted purchases altogether, traders say. “It’s been like that since December,” said Kranig of IM-EX Global. “You’re going to get not only a shortage of food but a shortage of everything. I would not be surprised to hear some beneficial cargo owners’ freight rates for 2021-2022 shipping season double from previous years.”

If that prediction bears out, once the bulk of North Americans and Europeans are vaccinated, some of those high freight rates could be passed on to them as they return to cafes, restaurants and office towers.

The container crunch comes just as American shippers are trying to boost exports of everything from soybeans to grain meals to Asia. China is scooping up American crops to feed a hog herd that’s recovering from a deadly pig disease faster than most expected. The situation is so dire that some buyers are canceling contracts, opting for bulk shipping methods, the most common for feed products, or delaying purchases to avoid high freight costs.

“We know that some of the industry’s largest and most consistent buyers of soybean containers in Asia over the years are now electing to buy bulk vessel supplies,” said Doug Grennan, vice president for select global grain and oilseeds at Scoular Co., a century-old trader that’s one of the U.S.’s largest shippers of agricultural goods in containers. “And certainly like others, we had some booking cancellations.”

Hapag-Lloyd AG last year told customers it was suspending overseas container shipments of North American agriculture products to reposition empty containers back to Asia. Nico Hecker, director of global container logistics at the German sea-freight company, said in November that the firm was experiencing the strongest increase in demand for 40-foot (12-meter) containers following one of the biggest decreases ever.

“As containers became scarce in Asia, demand outpaced supply” along all container routes, said Judah Levine, research lead at Freightos. Some carriers have canceled sailings in coming weeks to catch up from delays, he added.

Pressure on prices

The pandemic has also upended flows of refrigerated containers. In China, boxes are piling up at ports as workers have to comply with strict COVID-19 testing procedures as well as disinfection of meat and seafood products after frozen-food imports were blamed for the spread of the virus. There are so many cold containers in Dalian that the port is running out of power plugs to keep them on.

As imports are being held up, wholesale pork prices in China, the world’s top consumer, jumped to the highest since September. That’s prompted the government to boost sales of state pork reserves to meet booming demand ahead of the Lunar New Year holiday in mid-February.

Still, some see a major global spike in food costs as unlikely. Only a small percentage of grains and oilseeds is traded in containers, said Arnaud Petit, executive director of the International Grains Council in London, with the rest going bulk cargo. It’s also unclear how much of the rise in shipping costs companies will be able to pass on to consumers, given the economic slowdown caused by the coronavirus.

“It’s a bit of a perfect storm,” said Grennan. ”You have pent up demand in Asia for agriculture products and that’s at the same time you have a pretty substantial consumer goods demand in the U.S.” Around Los Angeles and Long Beach, congestion among laden ships arriving at ports has hit unprecedented levels, worsening a bottleneck at the busiest gateway for U.S. imports.

A record 38 container ships were awaiting berth space according to a note by the Marine Exchange of Southern California last Thursday — 36 at anchor, and two more that were directed to wait in designated areas at sea until anchorages were available.

Those floating off Los Angeles have capacity to be carrying almost 300,000 containers measured by 20-foot equivalent units, according to the marine exchange’s list. L.A. was expecting to handle 155,000 inbound containers this week, 80% more than a year ago, and Long Beach estimated taking in just under 100,000.

Major retailers face disruption

For the queued ships, the wait appears to range from several days to nearly two weeks. The ship that’s first in line to move into berth arrived on Jan. 16, according to the marine exchange’s latest records. The authority is using so-called drift zones for the first time since 2004 to manage traffic into the neighboring ports.

The crunch has developed as American companies try to restock warehouses and consumers, lacking travel and other entertainment options during the pandemic, buy more products for their homes.

As issues on land worsened by the spread of the novel coronavirus — like sick longshoremen, social distancing restrictions for those working and shortages of equipment and truckers — slow operations at ports, they hinder not only container turnaround but also difficulties with moving newly arrived containers.

Companies including Sweden’s Ikea have alerted customers to potential disruptions from global transport delays. Michigan-based appliance-maker Whirlpool Corp. is paying more for faster options like air cargo to get its components and products on time. Other firms are dealing with suppliers that are behind schedule.

“The port situation quite frankly is actually getting worse by the day, not better,” Michael Speetzen, interim CEO of Minnesota-based off-road carmaker Polaris Inc., said according to a transcript of a conference call last week. “So we know that we’re going to be fighting that.”

“This is a problem which does not have a short-term fix,” said Lars Jensen, chief executive officer of SeaIntelligence Consulting in Copenhagen.

Just how long the gridlock lasts hinges on whether the carriers maintain scheduled sailings to the U.S. or cancel some trips in coming weeks. The best-case scenario to relieve the pressure: a seasonal decline in shipments from Asia after Lunar New Year. “This will dampen the inwards flow of goods by the end of February and give some breathing room to clear the backlog — but that clearing will still take some time,” Jensen said.

Southern California’s main port complex has managed such situations before, most recently an episode caused by a labor dispute in 2015. The port infrastructure also threatened to be overwhelmed in 2004 when — three years after China joined the World Trade Organization — dozens of ships laden with Chinese goods also proved a challenge.

The main difference now is cargo ships that are even bigger and take longer to unload, and the host of workplace challenges on the waterfront presented by COVID-19. Inclement weather can also compound the handling of vessels trying to unload. Last week strong winds and 17-foot (5.2-meter) swells prompted several to hoist anchor and seek safety away from shore.