Oh………for a box!

In early 2020 when the Covid 19 pandemic gathered pace around the world and governments rushed to enforce lockdowns and seal borders, supply chains all over were hit badly. International trade took a tumble as factories were shut, and cargo which had already moved got stranded on roads, ports, container freight stations and in mid-sea. Ships were not allowed to berth and even when some of them did, after a quarantine period, the number of workers at the ports were limited, so clearance of cargo became an onerous task. One could see huge pile-ups at ports and airports. The whole world had shut down.

The business losses ran into billions of dollars and even as they fought a losing trade battle with the pandemic, business community the world over was clutching at straws. This pandemic was something new, something none had bargained for. They pored through their insurance policies, sought expert opinion and sought legal help to see if insurers could in any way compensate them for the direct and indirect losses caused by the pandemic. Insurers too were working overtime to see if the policy wordings provided them some insulation against direct and indirect losses caused by the pandemic to prevent them going down under. Even as legal cases continue in some countries, broadly clarity has been achieved as regards insurance — The crux of the matter being that all first-party insurance should face a ‘ physical loss/damage/illness’ due to Covid-19 for the concerned insurance policy to respond. Health and life insurance certainly had to pay claims related to Covid treatment/death. Not so in case of Property, Engineering, Construction or Marine insurance. Does Covid-19 cause physical loss or damage to the insured property? Simple answer is No, though there could be additional expenses necessitated by the pandemic. As for business interruption losses, the ‘material damage warranty’ came to the rescue of insurers. Event insurance saw claims but in some cases, pandemic-related event cancellations were excluded in many cases. Trade credit and Liabilities have seen heavy claims. Insurers have been quick to react and with lessons learnt, are putting in specific pandemic-related exclusions in policies across lines of business. ( LMA 5391 & LMA 5395)

The exporters/importers/supply-chain professionals and cargo insurers had recurrent nightmares about the various threats that Covid-19 could have on their cargo. While the fears were justified, ( refer my posts of a year back Coronavirus & Cargo insurance, Coronavirus – Challenge 1, Coronavirus – Challenge 2, Coronavirus -Challenge 3), in reality,payable cargo losses were not anywhere near the massive fears which trade & the insurance industry had. The point to be noted is that it was a new learning for everyone.

Now, in 2021 as the whole world is slowly but surely winning the battle against the virus with vaccines being available, everywhere we see opening up — factories are starting to hum again, border restrictions are being eased, people slowly getting back to offices as battered economies look to go on the growth path again. A new problem has emerged for international trade. What is it? Shortage of shipping containers (20 and 40 feet boxes). You may wonder if Covid-19 damaged the containers,no that is not the case. 85% of the world trade happens through containers. It is estimated that there are 17 million containers in use around the world. Then there should be no issue, right? The problem is many of the containers are lying with cargo/ empty in inland container depots, at ports & some on vessels still at sea. One must understand that a container stuffed with cargo which goes to one country, returns subsequently with some other cargo from that country/nearby regions. Shipping back an empty container is never an economically viable option. As economies limp back towards normalcy, the time taken at each stage of container stuffing, clearance, shipping, de-stuffing, etc. is much longer than normal, creating shortage in availability of containers for subsequent movements.

The problem gets compounded when one looks at the pattern of world trade coupled with the post-pandemic recovery timelines of different countries. It may be recalled that the pandemic broke out in China, a major international exporter. All Chinese exports were looked at with suspicion and hence containers with cargo started mounting in Chinese ports, on vessels which were not allowed to berth and also containers with cargo lying uncleared in discharge ports. Gradually as the pandemic spread, containers from other countries too met with the same fate, Now when one looks at the recovery pattern, the Asian countries like China, India and Vietnam have recovered faster and production is getting ramped up but the problem faced is shortage of containers. All containers with export cargo to North America and Europe have not come back. It is estimated that out of every 100 containers from China which went to the US, only 40 have come back. Recovery is yet to pick up in the US and Europe and hence the cargo they have imported have not been cleared yet or even if so, there is no major production which can be exported in these containers. So these boxes lie stranded in US & European ports/inland container depots. Asian countries are ready with products for exports but the waiting-period and increased hire charges for a container are big challenges. In India, the Railways have allowed free movements for empty containers from the ports to ICDs and vice-versa, but is it sufficient?

Can new containers be built? Yes, that is one avenue which needs to be quickly explored. China manufactures around 85% of the world’s containers and now with the shortage, prices of new containers have also gone up. Leasing charges for containers too have risen to hitherto unseen levels. India would do well to start manufacturing its own box containers which could become a product for export too. This container crunch is here to stay for quite some time, it appears, at least till mid-2021.