Finance

Supply chains/Felixstowe: market failure favours merchant navy

Before anxious children can open all their Christmas parcels this year, ports worldwide will have to deal with much bigger containers. The UK’s leading container port, Felixstowe, has such a build-up that Denmark’s Maersk has decided to divert its vessels. The supply chain blockages clogging sea freight routes could last for months.

Felixstowe’s logjam of big metal boxes is causing sizeable problems for UK importers who want to stock up for the holiday season. The port normally handles 36 per cent of seaborne container freight, because it can harbour the largest vessels. Stacks of empty containers reduce capacity for full ones to be stored and unloaded.

This looks like a market failure. The empty containers are valuable, having doubled in price. Moving full ones is highly lucrative. Shipping rates globally average more than $10,000 per 40ft equivalent unit, triple the price of a year ago. Yet containers are piling up, contributing to the squeeze.

Contrarians expect the lull before Chinese new year in early February to provide the chance for supply chains to reset. More ships will eventually appear. Container ship order books have jumped to more than 25 per cent of vessels in service, according to Bernstein Research, though the number under construction has not budged. Share prices of transport companies have fallen in recent months.

However, the supply chain crunch involves both land and sea transport connections. The former is equally a problem in the UK given a shortage of lorry drivers. Freight offloaded at ports cannot easily move off to customers. Moreover, UK rail freight capacity is stretched. One way to measure this is freight train kilometres. This hit a five-year high of 8.52m in the quarter to June, says the Office of Rail and Road.

Felixstowe is not the only port with bottlenecks. Ships docking at their destinations are doing so an average of 7.6 days late. That is almost double the average of the past three years. The figure is rising. Expect shipping companies to upgrade full-year earnings again this year.

The Lex team is interested in hearing more from readers. Please tell us what you think of container logjams in the comments section below

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