China’s Container Production Cuts Amid Shipping Industry Slump

Containers and cargo vessels at the Qingdao port in Shandong province, China, on May 9, 2022. China Daily via Reuters

Container production is waning in China, where empty containers collect in ports amid weakening exports. All these are indicators that China’s shipping industry is in a state of decline.

Data shows that the global production of new containers in the first quarter of 2023 has fallen to the lowest since 2010.

According to data released in May by Drewry, a U.K.-based shipping consultancy, global container production shrank to 306,000 TEUs (Twenty-foot Equivalent Unit) in the first quarter of 2023, down 71 percent year-on-year.

Drewry expects continued weakness in shipping trade in 2023, with the global container fleet contracting by 2 percent, which would be the first capacity decline in 14 years.

In this wave of production cuts, China, as the world’s largest container producer, has been greatly impacted.

Sales, Net Profit Plunge

According to a report released by the U.S. Federal Maritime Commission in March 2022, China’s China International Marine Containers (CIMC), DongFang International Container, and CXIC Group Company produced 82 percent of the world’s containers.

The China Container Industry Association puts it even higher with Chinese companies, led by CIMC, producing 95 percent of the world’s containers.

Aerial view of shipping containers stacked at Yangshan Deepwater Port in Shanghai, China, on May 19, 2021. Shen Chunchen/VCG via Getty Images

Based in Shenzhen, CIMC is the world’s largest container manufacturer. According to the company’s report released on April 27, in the first quarter of 2023, its revenue fell by 25 percent year-on-year, and its net income attributable to shareholders was 160 million yuan (about $23.19 million), down more than 90 percent year-on-year.

In 2021, the demand for shipping soared due to the impact of COVID-19. The cumulative sales volume of dry cargo containers of CIMC reached 2.5113 million TEU that year, an increase of 1.5 times over the sales volume in 2020. Revenue from the group’s container business nearly tripled year-on-year.

However, starting in 2022, with the end of the pandemic in most parts of the world, the landscape of the maritime market changed. With weak demand, freight rates continued to decline, driving the cumulative sales of dry cargo containers of CIMC in 2022 to drop sharply to 1.1073 million TEU, down nearly 56 percent year-on-year. Revenues at the group’s container business fell almost 31 percent year on year.

Entering the first quarter of 2023, the decline in container sales of CIMC continued. Among them, the cumulative sales volume of standard dry cargo containers was 82,500 TEU, down about 76.69 percent year-on-year. The cumulative sales volume of coolers was 12,100 TEU, down about 62.54 percent year-on-year. The cumulative sales volume of special dry cargo containers was 66,100 units, down 13.37 percent year-on-year.

CIMC’s report explained that the sharp decline in performance was due to the overall weakness of the shipping market, a continued decline in container trade, and a lack of demand for new boxes in the first quarter of 2023.

Containers Collect in Ports

The sharp decline in container production has coincided with a worsening of container accumulation at Chinese ports.

When the global Container Availability Index (CAx) is 0.5, the same number of containers enter and leave a port in the same week. When CAx is higher than 0.5, more containers enter a port than leave the port. When CAx is below 0.5, more containers leave a port than enter the port.

At Shanghai Port, the CAx index for 40-foot containers was above 0.5 in all but two weeks of 2022, mostly between 0.55 and 0.6. Since the beginning of 2023, the piling of 40-foot containers has intensified, with the CAx index all above 0.63. The CAx index of 20-foot containers was above 0.53 in 2022, and the index in 2023 is all above 0.65. The figures show that the number of containers entering the port is far greater than the number of containers leaving the port.

Workers on a crane above containers at the Yangshan Deep Water Port in Shanghai on Jan. 13, 2022. Aly Song/Reuters

In Qingdao Port, the CAx index for 40-foot containers was above 0.58 in 2022 and has remained above 0.64 since 2023. Although the situation of 20-foot containers is slightly better than that of 40-foot containers, its CAx has been above 0.52 since 2022.

Weak Exports

According to data released by China’s National Bureau of Statistics at the end of May, the new export orders index of China’s manufacturing industry, which reflects the prosperity of the country’s export trade, fell again below the 50 percent threshold in April to 47.6 percent. In May, the index fell further to 47.2 percent, indicating continued weakness in export trade.

The lack of export orders in the manufacturing industry has made the demand for export shipping weak, and shipping prices have continued to fall.

China Containerized Freight Index (CCFI) compiled by Shanghai Shipping Exchange is calculated by the freight rate and container volume of 12 representative routes, reflecting the trend of container shipping prices exported from Chinese ports, as well as the global trade supply and demand situation.

According to CCFI, at the peak of Feb. 11, 2022, the freight indexes of three main routes from China to the West Coast of the United States, the East Coast, and Europe reached 2,745, 2,802, and 5,854, respectively.

After that, the indexes fell sharply.

As of June 2, the freight indexes to the West Coast, East Coast, and Europe fell to 699.5, 860, and 1,150, respectively. Compared with the high point in February 2022, they shrank by 74, 69, and 80 percent, falling to levels before COVID-19.

Chinese container ship "Cosco Shipping Aries" is unloaded at a loading terminal in the port of Hamburg, Germany July 27, 2018. Fabian Bimmer/Reuters

China COSCO Shipping, a major provider of integrated services for global container shipping, released its Annual Report 2022 in April, showing that the company’s net income attributable to shareholders fell by about 75 percent in the first quarter year-on-year.

For the subsequent trend of the container shipping market in 2023, COSCO believes that due to geopolitical tensions, high inflation, tight monetary policy in European and American countries, and other factors, the container shipping industry demand will further slow down. Coupled with changes in the trade pattern, industry competition will further intensify.