Deutsche Welle (English edition)
Coronavirus conundrum: Containers still in short supply
Demand for freight container transport has been soaring for about six months — despite or because of the pandemic. The same can be said of cargo rates and the profits made by shipowners.
"Since the third quarter, we've seen an unparalleled rise in demand for container transport," Nils Haupt of container shipping company Hapag Lloyd told DW. It's an unexpected but gratifying development following 12 years of a business slump and the onset of the pandemic.
Haupt said shipping was hit hard in January and February 2020 as Chinese production ground to a halt, and so did exports to Asia. "But then things took a turn, and demand took a dive in the US, Europe and South America," he recalled. "Chinese production was restarted, but there wasn't a lot of transport activities — our industry thought it would stay this way for weeks or even months."
Lockdown causes boom
Things took a turn again in August when demand for container transportation picked up considerably, exceeding supply capacities. This boom has also been caused by lockdowns, seeing a lot more people work from home and spend less on travel or services. As a result, many have invested in new furniture, consumer electronics,
sports equipment and bicycles rather than saving their money. In addition, big businesses and traders have been stocking up their warehouses again.
Fleets could not grow fast enough to keep abreast of increased demand for container shipping. "Many shipowners have decommissioned many old vessels in the past few years," Burkhard Lemper from the Institute for Shipping Economics and Logistics (ISL) told DW. He added that shipowners had also been hesitant to order new vessels, and after the beginning of the coronavirus crisis some orders had been postponed.
"Our biggest worry at the moment is that we don't have any spare ships on the market," Hapag Lloyd's Nils Haupt said, adding that it was impossible right now to charter ships. "All ships that are able to carry containers and that are not at shipyards for repair work are in use, and there are no spare containers either," Ralf Nagel from the German Shipowners' Association (VDR) confirmed vis-a-vis DW .
Transport delays add to shortage
The lack of ships is not the only issue. The huge demand and the pandemic have caused massive disturbances at the ports and during inland-bound transport. In Los Angeles for instance, ships have to wait for about 10 days before being allowed to enter the port. Lack of staff because of lockdown measures and sick leaves exacerbate the situation, with the pandemic sometimes isolating whole crews in quarantine.
"There are still some 400,000 seamen out there who cannot be replaced according to schedule," said VDR President Alfred Hartmann.
Empty containers are a real bottleneck as they tend to be at sea much longer than usual due to delays at ports, on canals and during inland transport. In January alone, Hapag Lloyd ships were 170 hours late on average on the most frequented Far East routes. On trans-Pacific routes, delays added up to 250 hours on average.
Moreover, containers tend to stay with customers longer until they can be handled. "Last year and at the beginning of this year, we bought 300,000 new containers, but even those weren't enough, Haupt remarked. To buy even more was no alternative either, he added, as producers were already working at full capacity and prices had skyrocketed.
High cargo rates, high profits
High demand has resulted in soaring cargo rates, putting those with long-term contracts at an advantage — contracts struck before the boom kicked in. But whoever needs more transport capacities at short notice is forced to shell out a lot of money and can consider themselves lucky if their wares get shipped at all. "Right now, it's next to impossible to book shipping capacity at short notice," Haupt confirmed.
According to Haupt, cargo rates are now up to four times as high as they were a year ago, particularly concerning transports from China. Average cargo rates at Hapag Lloyd rose by 4%
in 2019, Haupt said.
As Germany's largest container shipping company, Hapag Lloyd had a good year in 2020. This year, the company expects another jump in profits. It may finish the first quarter with earnings before interest and tax (Ebit) of at least €1.25 billion ($1,25 billion), compared with just €160 million in the same period a year earlier.
The world's biggest container shipping company, Maersk, logged an adjusted operating profit of $2.71 billion in the fourth quarter of last year. The Danish firm also expects earnings to increase further in 2021.
The end of the line?
"Right now, we have full ships coming from China, bound for the US and Europe," Haupt said. He thinks demand will not let up in March and April. He warned, though, that this development might not last the whole year. "Ours is a very volatile industry — we've seen a lot of ups and downs in the past years and decades."
"The size of the shipping fleet
Student debt, an issue in many countries, is particularly a problem in the United States because of the high price of higher education. People who have student loan debts may hold off on buying cars or houses or setting up businesses. Debt can also affect credit scores, which could even keep borrowers from being able to rent apartments.
Many borrowers can't pay the money back right away. The country's bankruptcy laws don't help with student debt either; in most cases borrowers are still required to pay back the money.
Because most federal student loans are held by the Education Department, Joe Biden extended a pandemic moratorium on repayments through the end of September in one of his first official acts as president. He has also proposed $10,000 (€8,200) in debt forgiveness for every American with federal student loans. Democratic policymakers want more, much more.
"College should be a ladder up. For too many people, debt is the anchor that weighs them down and they rarely overcome it," Senate Majority Leader Chuck Schumer said at a press conference in February to announce his proposal to cancel up to $50,000 per buyer, which would wipe away a total of 80% of the nation's student loan debt covering 36 million people.
'Serious financial consequences'
Currently, outstanding federal student debts in the US total
about $1.6 trillion (€1.32 trillion). On top of that are private loans that add up to another $123 billion, according to academic data collector MeasureOne. Overall, student debt has more than doubled in the past decade. For around 43 million borrowers, the monthly repayment bills can turn into a long, devastating burden.
"Failing to repay a student loan can have serious financial consequences for borrowers. They can face collection fees, wage garnishment, damage to their credit scores, and withholding of federal benefits and tax returns," Sarah Sattelmeyer, director of the student borrower success project at the nonprofit Pew Charitable Trusts, told DW.
Besides that, the student loan repayment system is "complex, outdated and undermines borrowers' efforts to repay their loans," she said. It not just individual borrowers who are in trouble, though.
The wider impact of growing student debt default won't be a sudden crash like the 2007-2008 global financial crisis ,
which was caused by the housing bubble and mortgage-backed securities. It will be a long process that slows down many lives.Some think debt cancellation alone is not the answer and argue the whole system needs fixing. Solutions range from only lending to undergraduates, turning the screws on what schools charge and regulating for-profit colleges more rigorously. More basic ideas are educating young people about loans and debt before they take on such responsibilities or just making the government-backed loans interest-free.
US's structural hurdles
An increase in the amount of overall debt is not necessarily a bad thing. It could indicate that more people are going to school with the goal of having access to better-paying jobs, Sattelmeyer said. For her it is not the extremes or even the average debt load that count. "I tend to think that median is a more telling statistic than average for student loans, because some very high values among a small number of borrowers pull the average up." The median amount that borrowers owe today is about $20,000.
Many borrowers get in over their heads, and not everyone finishes school. "Counterintuitively, borrowers who owe the least — often less than $10,000 — and may not have completed their programs of study, default on their loans at higher rates than those with larger balances," Sattelmeyer said.
It is the number of borrowers who default on loans, meaning that they haven't made full repayments for nine months, that is causing alarm. Today a quarter of borrowers will default on their student loan within 12 years of starting college, according to Judith Scott-Clayton, an associate professor of economics and education at Columbia University.
"One in four borrowers defaulting is way too many to experience such a negative consequence from college enrollment. And default rates are much higher for nongraduates as well as for Black borrowers regardless of their graduation," Scott-Clayton told DW.
In the US, there are structural hurdles that often mean that people do not always benefit equitably from higher education. "Research indicates that Black borrowers have fewer resources with which to finance a college degree, they borrow more while in college, and they earn less afterward. They also are more likely to experience growth in what they owe after leaving school and are more likely to default on their loans, even when they have college degrees," Sattelmeyer said.
Scott-Clayton said the student loan system — especially the repayment system — was complicated to navigate and problematic. "Not only will it cause harm for yesterday's borrowers, but it will also make tomorrow's students think twice before pursuing college," she said. "And we know that the whole economy loses out when college attainment does not keep pace with the demand for college-educated workers." Scott-Clayton said a good start would be to lower costs for the first two years of college and automatically enroll borrowers in income-based repayment plans that would protect them against loan default would be a good start to keep many students on track and out of a downward spiral.
Whether Biden or Congress really cancel any debt remains to be seen. It is a decision that could have a huge impact on millions of lives by pulling them out of debt and free up capital to boost the domestic economy.