How Does the Container Crisis Affect International Trade?

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We have heard a lot about the container crisis lately, but what does it mean, and how does it affect global trade and ultimately the consumer?

The COVID-19 pandemic has had a series of negative impacts on the global economy such as closures of businesses and factories, shortages of raw materials and consumer goods, a saturation of ports, increases in the reception times of goods, etc. The container crisis is understood as a combination of the scarcity of transport space available to ship products and the exorbitant increases in maritime transport costs, which entails significant effects on merchants and ultimately, consumers.

Container shortages are a visible consequence of the pandemic. However, when there is a contraction in the world economy due to border closures to control the spread of the virus, followed by restrictions on imports and exports, as well as temporary or permanent closures of factories and companies, the demand for products and maritime transport decreases, which in turn causes a lower circulation of cargo ships and containers.

However, once international economies begin to recover as they are doing now, thanks to global management of the virus, the advance of vaccination, and the release of pent-up consumer demand in most countries, the need for maritime transport space increases dramatically. Unfortunately, the shipping transport system is unable to meet this need due to the lack of available containers and ships, inaccessibility of routes, traffic jams at international ports, temporary closures of maritime terminals, and port delays for the entry and exit of products, all of which prevent an adequate supply chain flow.

In addition, the costs of maritime transport freight have skyrocketed, causing great alarm to the international trade sector, since it is estimated that in one year the price to ship a container has more than quadrupled. According to the World Container Index (WCI), which tracks freight container shipping costs, as of October 14, 2021, such cost reached $9,900.25 per 40-foot container, which is 283% higher than a year ago. So far this year, the WCI average composite index is $7,126 per 40-foot container, which is $4,629 more than the five-year container cost average of $2,497.

According to estimates by the United Nations Conference on Trade and Development, around 80% of the goods consumed in the world are transported by sea. Therefore, the lack of maritime transport space and its dramatically rising costs significantly impact world trade.

All this causes great consternation to merchants since the container crisis collides with the increase in demand expected in the last quarter of the year approaching Christmas. Merchants are anxiously wondering whether they will be able to meet demand. A shortage of products caused by delays in their arrival and the steep increase in logistics costs affects a seller’s profits and competitiveness and creates anxiety over when this crisis may abate.

Ultimately, the situation impacts the consumer since the rise in logistics costs translates into an increase in the price of newly-arrived goods. However, the percentage of the inflated shipping costs

that sellers can pass on to consumers who vote with their billfolds and pocketbooks remains to be seen.

Therefore, participants in the logistics chain, particularly recipients, must keep a close watch on the container crisis to make business decisions that minimize the negative impact on operations.

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