It continues to be good times for ocean container carriers, as demand continues to spike after fears early in the virus crisis that container volumes would tank.

Supply Chain Digest Says...   Two week ago, container carrier CMA CGM said the Chinese regulators were cautioning carriers to put a ceiling on rate hikes.     What do you say?   Click here to send us your comments       Click here to see reader feedback

In fact, the maritime analysts at Drewry said in a blog post last week that "The current state of the container market is one of dysfunction, bordering on chaos."

That included the graphic below from Drewry, which shows major ports across the globe are facing major congestion and levying surcharges to importers to pay back some of their extra handling costs.

The reversal in fortunes for container lines resulted in many cancelling scheduled sailings, acting in effect as capacity reduction, and throwing supply-demand balance in the carriers' favor even when volumes were down.

Now, volumes have roared back, and carriers are bringing back idled capacity and cancelling far fewer routes.

"The speed in which some ships have shifted from being redundant to essential has been staggering, as evidenced by the rapidly shrinking idle fleet and soaring charter rates," Drewry says.

Then there has been the widely report container shortage in recent weeks. But Drewry observes that "The problem right now is less to do with there being insufficient numbers of ships (or to a lesser extent containers), rather an inability to get them where they are needed in a timely fashion."

That said, Drewry adds that believes the situation will ease until a time when the demand curve flattens, and/or when container manufacturers have added sufficient new stocks.

So container carriers are almost all reporting very strong Q3 profits. Despite revenue dropping by 1.4%, profits in Q3 at Maersk, the sector largest container line, were up 39% before taxes and depreciation.

Drewry says that rates are right now up about 100% since the start of 2020.

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What's more, "The only impediment to further freight rate inflation right now appears to be fear of regulatory retribution," Drewry says.

Two week ago, container carrier CMA CGM said the Chinese regulators were cautioning carriers to put a ceiling on rate hikes, concerned further increases could hurt Chinese exports.

The container carriers have two basis choices, Drewry says. One is to invest in new ships, which ultimately will likely result in lower rates from the additional capacity entering the market. Or two, freeze or minimize investment, which will draw complaints from shippers, - save money and increase the probability of sustained highly profitable freight rates.

Drewry appears to believe carriers will mostly opt for the second choice.

"Right now, carriers do not have much incentive to take the altruistic decision," Drewry notes.

Drewry concludes that "To build a more resilient supply chain that can weather extreme volatility will require a paradigm shift so that investing in a safety stock of surplus of capacity/infrastructure is not jumped on as an opportunity to drive down rates."

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