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Changing Market Conditons expected to affect Shipping Container prices

by Container Traders

Changing Market Conditons expected to affect Shipping Container prices Changing Market Conditons expected to affect Shipping Container prices

The third and fourth quarters of 2024 are shaping up to be challenging due to container shortages and subsequent sharp price increases across the board. 
In a nutshell, leasing companies typically utilize containers for global cargo movement for 12-15 years before retiring and replacing them. When containers aren't circulating as usual, factories must manufacture new units to meet shipping demands from Chinese manufacturing.
This surge in demand leads to rapid factory availability and price spikes. Among the multitude of global issues, the four main drivers of depleting availability of inventory and increasing rates below. 

1.    USA’s new China Tariffs on EV’s
The United States has sharply increased tariffs on Chinese electric vehicles (EVs) to 100% and imposed 25-50% tariffs on other Chinese products like lithium-ion batteries, solar cells, and certain critical minerals. This move, largely pre-emptive regarding EVs, is significant due to the U.S. reliance on Chinese lithium-ion batteries. 
These tariffs aim to strengthen domestic clean energy industries by combining substantial subsidies with protectionist measures. This strategy reflects bipartisan support for reducing dependency on Chinese imports, but it raises concerns about undermining the global trading system, slowing climate progress, and negatively impacting developing nations that rely on affordable Chinese imports. 
The result? 
Importers, manufacturers, resellers of EV, lithium-ion batteries, solar cells etc and scrambling to ship as much product from China as possible before the tariffs kick in. This is not only driving up shipping but driving up container demand and in turn container pricing in China. 
The long tail result once the scramble is over will be a serious imbalance of empties in the USA.
Reference: https://www.lowyinstitute.org/the-interpreter/what-do-biden-s-big-new-china-tariffs-mean-global-development#:~:text=The%20United%20States%20has%20imposed,cells%2C%20and%20some%20critical%20minerals

2.    The Drought in Panama 
Since early 2023, Panama has faced severe drought conditions, leading to historically low water levels in Lake Gatun, (the Panama Canal's primary water source). 
This has forced the Panama Canal Authority to limit ship traffic, particularly the big 25,000 TUE vessels, causing significant disruptions to global shipping routes. 
The result? 
Longer routes, increasing transit times & shipping costs, resulting in a shortage of shipping containers, subsequently driving up prices & complicating logistics for exporters and importers and traders globally. 
Reference: https://www.worldweatherattribution.org/low-water-levels-in-panama-canal-due-to-increasing-demand-exacerbated-by-el-nino-event/ 

3.    Yemen's Houthi militia – in the Red Sea 
Attacks on commercial vessels in the Red Sea by Yemen's Houthi militia are disrupting global shipping, leading to increased freight costs and delivery times. Major shipping companies, including Maersk, Hapag-Lloyd, and MSC, have suspended operations through this vital trade route. 
Experts warn that consumers will soon feel the impact through shortages, price increases, or shrinkflation. The Red Sea route is crucial, handling nearly 15% of global seaborne trade, including significant portions of the world’s grain, oil, and liquefied natural gas. 
Disruptions here are particularly problematic as they affect a wide range of consumer goods from clothing to electronics. To avoid the conflict zone, many ships are rerouting around the Cape of Good Hope, causing delays and higher costs. 
Container shipping prices from Asia to Europe have surged by 175-250%, and oil and gas prices have become volatile. 
This disruption affects not only the supply chain's "just in time" system but also regional economies, with European consumers likely to face the highest price increases. The situation underscores the interconnectedness of global trade, as delays and cost hikes ripple through manufacturing systems worldwide, ultimately burdening consumers with increased costs.
The result? 
The disruption of shipping routes continues to significantly impact container availability, another driver of price increases. With major shipping companies rerouting or suspending operations through this crucial trade corridor, supply of shipping containers to Australia will likely diminish. 
Reference: https://time.com/6553141/red-sea-houthi-attacks-consumer-prices-cost/ 

4.    China’s currency manipulation 
China keeps the Yuan undervalued against the dollar by purchasing dollars and selling yuan, which prevents the yuan from appreciating significantly. This currency manipulation makes Chinese goods cheaper on the global market, enhancing China's attractiveness for manufacturing and exports. 
The high demand for Chinese exports results in a surge of shipping activity, leading to a shortage of shipping containers. 
The result? 
The increased demand for export, increases need for containers in China (with the other current factors mentioned) and containers are not flowing like they have historically, drives up container prices.

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