Posted: March 26th, 2023

Research on Responses of Container Ports to Global Pandemic

Research on Responses of Container Ports to Global Pandemic
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Container ports are essential nodes in the global supply chain, handling over 80 per cent of global merchandise trade by volume and more than 70 per cent by value. The COVID-19 pandemic has posed unprecedented challenges to the container shipping industry, affecting both the demand and supply sides of the market. This paper aims to examine how container ports have responded to the pandemic and what implications it has for policymakers.

The paper is organized as follows: Section 1 provides an overview of the impact of the pandemic on container trade and freight rates. Section 2 discusses the main factors that have contributed to the container shortage and port congestion. Section 3 analyzes the responses of container ports to cope with the disruptions and improve their efficiency. Section 4 concludes with some policy recommendations.

## Impact of the pandemic on container trade and freight rates

The pandemic has caused a sharp decline in global trade in the first half of 2020, followed by a strong rebound in the second half, driven by changes in consumption and shopping patterns, stimulus packages, inventory-building and frontloading. Containerized trade flows increased by 1.5 per cent in 2020 compared to 2019, reaching a new record of 152 million TEUs.

However, the recovery was uneven across regions and trade routes, reflecting the different speeds and stages of the pandemic and the economic recovery. The main East–West routes, especially those connecting Asia with North America and Europe, experienced a surge in demand, while the North–South and intraregional routes suffered from weaker demand.

The mismatch between demand and supply of shipping capacity led to a significant increase in container freight rates, reaching historical highs in some routes. According to UNCTAD, the average composite freight rate index rose by 50 per cent in 2020 compared to 2019. The rates to South America and West Africa were particularly high, as these regions faced greater challenges in repositioning empty containers and clearing port backlogs. The obstruction of the Suez Canal by a grounded container ship in March 2021 also contributed to a further surge in freight rates, as well as delays and rerouting costs.

## Factors contributing to the container shortage and port congestion

The container shortage and port congestion are complex phenomena that have multiple causes and interrelated effects. Some of the main factors are:

– Capacity management by carriers: In response to the initial drop in demand due to the pandemic, carriers reduced their capacity by cancelling or skipping port calls (blank sailings), scrapping or idling older vessels, and delaying new orders. This helped them maintain high utilization rates and profitability, but also reduced the availability of containers and ships for shippers. As demand recovered faster than expected, carriers struggled to restore their capacity and reposition their containers to meet the demand.
– Delays in intermodal connections: The pandemic also affected the inland transport systems that connect ports with other modes of transport, such as trucks, trains or barges. Factors such as labour shortages, health protocols, border closures, testing requirements, factory closures and lockdown measures caused delays and disruptions in moving containers from ports to their final destinations or returning them to ports for export. This resulted in longer dwell times for containers at ports or inland depots, reducing their availability for shipping.
– Port operations: Ports also faced operational challenges due to the pandemic, such as labour shortages, health protocols, social distancing measures, equipment breakdowns and safety issues. These factors reduced their productivity and efficiency, leading to longer turnaround times for ships and containers. Moreover, ports had to deal with the fluctuations in demand caused by blank sailings, which created peaks and troughs in port activity and increased congestion. Ports also had to cope with larger vessels carrying more containers per call, which required more resources and coordination to handle them efficiently.

## Responses of container ports to cope with the disruptions and improve their efficiency

Container ports have adopted various measures to mitigate the impact of the pandemic and improve their performance. Some of these measures are:

– Digitalization: Digitalization is a key enabler for enhancing port efficiency, transparency and resilience. It can facilitate information exchange, coordination and collaboration among port stakeholders, such as carriers, terminal operators, customs authorities, logistics providers and shippers. It can also improve port processes, such as berth allocation, yard management, gate operations, cargo tracking and invoicing. Examples of digital solutions that have been implemented or accelerated by ports during the pandemic include electronic data interchange (EDI), blockchain platforms, smart contracts, Internet of Things (IoT) devices, artificial intelligence (AI) and cloud computing.
– Modernization: Modernization refers to the upgrading or expansion of port infrastructure and equipment to increase their capacity, productivity and sustainability. It can involve the construction or renovation of berths, quays, yards, gates, roads, railways and other facilities, as well as the acquisition or replacement of cranes, trucks, scanners, sensors and other equipment. Modernization can also include the adoption of green technologies and practices, such as electrification, automation, renewable energy and waste management. Examples of modernization projects that have been undertaken or planned by ports during the pandemic include the expansion of the Port of Salalah in Oman, the automation of the Port of Khalifa in Abu Dhabi, the electrification of the Port of Algeciras in Spain and the installation of solar panels at the Port of Berbera in Somaliland.
– Cooperation: Cooperation refers to the establishment or strengthening of partnerships and alliances among port stakeholders to improve their coordination and collaboration. It can involve the sharing of data, resources, best practices and experiences, as well as the harmonization of standards, procedures and protocols. Cooperation can also include the participation in networks or associations that promote common interests and objectives. Examples of cooperation initiatives that have been launched or enhanced by ports during the pandemic include the Port Call Optimization International Taskforce, the International Port Community Systems Association, the Smart Port Network and the World Ports Sustainability Program.

## Policy recommendations

The pandemic has highlighted the importance and vulnerability of container ports as critical nodes in the global supply chain. It has also revealed the need for further reforms and improvements in port efficiency and resilience. Based on the analysis above, some policy recommendations for policymakers are:

– Further promote and support the digitalization of port processes and transactions, by providing incentives, funding, guidance and regulation for port stakeholders to adopt digital solutions that enhance information exchange, transparency and security.
– Further invest and facilitate the modernization of port infrastructure and equipment, by providing incentives, funding, guidance and regulation for port stakeholders to upgrade or expand their facilities and acquire or replace their equipment with more efficient and sustainable alternatives.
– Further encourage and foster the cooperation among port stakeholders, by providing platforms, forums, networks and associations for port stakeholders to share data, resources, best practices and experiences, as well as to harmonize standards, procedures and protocols.
– Improve tracking and forecasting of container demand and supply, by using data analytics, AI and other tools to monitor and predict container flows and availability across regions and trade routes, as well as to identify bottlenecks and imbalances.
– Strengthen national competition authorities to ensure fair competition and prevent market abuse by carriers or other port stakeholders that may harm shippers or consumers.

## Works cited

: UNCTAD. 2020. COVID-19 and Maritime Transport Impact and Responses. Geneva: United Nations. https://unctad.org/system/files/official-document/dtltlb2021d1_en.pdf.

: UNCTAD. 2021. Container Shipping in Times of COVID-19: Why Freight Rates Have Surged, And Implications for Policymakers. Geneva: United Nations. https://unctad.org/system/files/official-document/presspb2021d2_en.pdf.

: UNCTAD. 2020. Review of Maritime Transport 2020. Geneva: United Nations. https://unctad.org/system/files/official-document/rmt2020_en.pdf.

: Ibid.

: Ibid.

: UNCTAD. 2021.

: Ibid.

: UNCTAD. 2020.

: Ibid.

: UNCTAD. 2021.

: UNCTAD. 2020.

: Ibid.

: Ibid.

: Ibid.

: Ibid.

: Ibid.

: Ibid.