According to the Financial Times, the shipping industry is taking proactive steps to reduce its reliance on China by establishing steel container production facilities in various Asian countries and the United States. This initiative aims to safeguard global trade from supply chain disruptions and geopolitical tensions. Manufacturers and government bodies are working to establish factories in Asia and the US to address concerns about overdependence on Chinese production, which contributed to trade disruptions during the COVID-19 pandemic. Currently, over 95 percent of the world’s containers are manufactured in China, with three state-owned enterprises dominating the market.
The motivation for these efforts stems from the growing diplomatic tensions and threats related to Taiwan, prompting companies and policymakers to reconsider their reliance on Chinese manufacturers. Carl Bentzel, a commissioner at the Federal Maritime Commission, characterized China’s dominance in container production as a “monopoly” for an “essential product.” His report, published last year, revealed that Chinese businesses were slow to increase container production during the pandemic, exacerbating the shortage of containers, leading to trade disruptions and increased costs.
While the industry currently faces an oversupply of containers due to declining export demand, there is a strong desire to ensure resilience against future geopolitical and trade disruptions. John Fossey, head of container equipment and leasing research at Drewry, predicts that demand for containers will likely shift to Vietnam, which, like China, is a low-cost manufacturing hub. In recent years, Vietnam has increased its exports to countries such as the United States as multinational companies diversify their production away from China.
Vietnamese steel group Hoa Phat has already launched its new container manufacturing plant in the southern part of the country, with the capacity to produce about 200,000 20-foot equivalent units (TEUs) annually. It aims to eventually increase production to 500,000 TEUs a year.
According to Freightos, container manufacturers produced an average of about 3.2 million TEUs of new containers annually in the decade leading up to 2020. In 2021, global container production increased to 7.1 million TEUs due to containers being trapped on ships and at congested ports. However, this production decreased to about 3.8 million TEUs in 2022, with the global container pool standing at approximately 50 million TEUs.
South Korea’s state-owned Korea Ocean Business Corporation (KOBC) has also expanded container production in Vietnam, with plans to produce up to 100,000 TEUs a year. KOBC expressed concerns about Chinese producers using their dominant position to manipulate prices and output during the pandemic and thus sought to diversify its supply sources.
Aside from Vietnam, container manufacturers are also establishing operations in India. In the United States, the government is supporting the development of “smart containers” equipped with tracking technology. The increasing focus on smart containers raises national security concerns, as China is also exploring this market.
Global Secure Shipping, a Maine-based business, has initiated the production of traceable containers with funding from the US Department of Homeland Security. Furthermore, the US government has utilized its regulatory powers to prevent China from strengthening its grip on container production. Danish group AP Møller-Maersk’s proposed $987 million acquisition of its refrigerated container business by China International Marine Containers (CIMC) was halted after a US investigation. The US Justice Department argued that the deal would have consolidated over 90 percent of global insulated and refrigerated container production within Chinese state entities.
Nevertheless, some in the shipping industry remain skeptical about how much production capacity will shift away from China. According to Joyce Tai, Asia Pacific managing director at Freightos, any market could compete with China if their steel and labor costs were lower, they received sufficient government support and subsidies, and their production rates were faster. However, practical challenges may limit the ability of other markets to surpass China’s production capacity.
As of June this year, within China, CIMC held a 52 percent share in container production, Dong Fang International Containers held 11 percent, and CXIC Group Containers held 7 percent, according to Drewry. State-backed COSCO Shipping Development, which controls DFIC, acknowledged that production was expanding abroad but emphasized that Chinese container manufacturers would face global competition in accordance with market rules.
Source: The Financial Times