China’s ‘Big 3’
The container manufacturing industry moved from Korea to China in the 1990s. China has increased its market share since then and has completely dominated the past 15 years. In the first quarter of this year, China’s top three builders accounted for 82% of global container throughput, according to Drewry data, an U.K. consultancy.
China International Marine Containers (CIMC) produced 580,000 TEUs, accounting for 42% market share; Dong Fang International Containers, 358,000 TEUs (26%); and CXIC Group 200,000 TEU (14%). According to Drewry, the market share is similar for the whole of 2020, when a total of 3.1 million TEUs were produced.
Factories are behaving differently
Between 2017 and early 2020, the price of containers dropped sharply, leading to low profit margins for manufacturers. So these three big companies decided to try to support some form of pricing for dry cargo containers.
Late 2019 prices are just $1,650-$1,750/TEU and they expect around $2,000 minimum. When the outbreak of COVID shut down operations in the first quarter of 2020, these three companies started raising prices. With strong consumer demand in the United States and Europe afterward, prices have skyrocketed, to around $3,500 by the end of 2020. John O’Callaghan, head of global operations at Triton, a container-equipment lessor, called the current rate “the highest I can remember.”
According to CAI’s Page, a container-equipment lessor CAI International, “The manufacturers seem to have little or no interest in accelerating container production. They’re more focused on maintaining high container prices. So, I think you are not going to see a flooding of the market with containers. You’re going to see a very measured response by the manufacturers to control the tight supply-demand balance that exists today.
Manufacturing in China is growing strongly
Theoretically, there are enough operating containers today to meet global trade needs. The problem is that all the containers are in the wrong place, with all the congestion and the velocity of the containers moving through the network is significantly slower. Congestion is definitely still delaying things. In February, there were still 35 container ships at anchor off the shores of Los Angeles and Long Beach — near record highs.
Meanwhile, China’s output this year is very high. In the first four months of this year, China’s factories were able to catch up to 2018’s record 4.4 million TEUs, equivalent to double-digit growth year-on-year.
Why can’t America compete?
It seems that making a container is a very simple job in the US, but in reality, a US-made container cannot compete with China.
The first issue is about critical raw steel, it is estimated that Corten (weathered) steel accounts for about 60% of the total cost of building a container. According to data provided by S&P Global Platts to American Shipper, US hot rolled coil prices over the past decade have been on average 28% higher than those in China. Recently, US prices have skyrocketed to almost double the prices in China.
The second issue is that China’s other competitive advantages range from lower labor costs to higher government support, which is hard to see in any other country of similar size to China.
Another advantage to manufacturing containers in China is the cost of moving empty containers. The lessors will not have to pay too much for the transportation of containers to the area of demand because China is a major producer of goods in the world.