The China Container Risk in Global Supply Chain and Foreign Trade

I recently sat on an ASTM F49 Committee Meeting on supply chain standards (I serve as the pro bono secretary for the committee). ASTM International is a standards development organization (SDO) that has been recognized as an international standards developer by the Organisation for Economic Co-operation and Development (OECD). In October 2022, ASTM International established the F49 Technical Committee on Digital Information in the Supply Chain. F49 will develop international standards for the appropriate sharing and use of digital information to enhance end-to-end visibility in the global supply chain. As part of this technical committee, I am working with colleagues on helping to identify the data standards necessary for next generation efficiencies in the global supply chain process covering all major modes of transport: Ocean Full Container, Ocean Less-Than-Container, Short-Sea, Road, Rail and Air. 

One of the speakers at this meeting was Commissioner Carl Bentzel from the Federal Maritime Commission. In our diacussions, he described a report he recently wrote on his Assessment of the People’s Republic of China’s Control of Container and intermodal Chassis Manufacturing, released in March.  There were several important findings from this report, that is certainly a concern that supply chain executives need to be concerned about. This report also aligns with my previous blog that identifies the risks of Chinese ownership of global ports and terminals.

As background, it is important to recognize the statements made by the People’s Republic of China relative to the global ocean freight channels. On December 7, 2020, during the height of concern about suppressed levels of container manufacturing in China, the People’s Republic of China’s (PRC) Ministry of Commerce (MOC), ostensibly took steps to assure the public of government control over production levels and price stability. As a government official stated:

“With regard to foreign trade logistics, due to the impact of COVID-19, many countries the world are facing similar problems now. The mismatch between supply demand of transport capacity is the direct cause why freight rates increase, and factors such as poor container turnover indirectly push up shipping costs and reduce logistics efficiency. On the basis of preliminary work, we will work with relevant departments to continue to increase transport capacity, support the acceleration of container return, improve operation efficiency, support container manufacturers to expand production capacity, strengthen market supervision, strive to keep market prices stable, and provide strong logistics support for the steady development of foreign trade. Thank you!”

Commissioner Bentzel noted that this statement, coming from a Ministry of Commerce spokesmen, starkly illustrates the level of commercial control that the PRC exerts over container manufacture. The fact that the PRC controls an industry that has a near defacto worldwide monopoly in the production of shipping containers should be deeply concerning. Commissioner’s Bentzel’s research led him to observe the following:

• The three largest Chinese manufacturers control over 86% of the world’s supply of intermodal chassis, and those same companies manufacture over 95% of containers in the world’s market, including U.S. domestic train and truck intermodal containers.
• When demand for ocean containers increased, Chinese-based intermodal equipment manufacturers were notably slow in ramping up production, raising the question of whether this was part of a deliberate strategy to manipulate prices.
• The Department of Commerce has determined that Chinese container and chassis manufacturers are state-owned and controlled and are the recipients of large government subsidies.
• The level of control manifested by the PRC government and Chinese container manufacturers is mitigated by the interest of the PRC in supporting their exporters reach overseas markets, especially the United States. However, the mitigating interest in carriage of Chinese exports does not extend to other trade markets in Asia, or other overseas markets that compete with Chinese exports, nor does it ultimately diminish the potential level of market manipulation.

These observations suggest that the global supply chain has become too interdependent not to have broad access and manufacturing capabilities for intermodal operational equipment. The United States should assess whether given the market dominance by the PRC, especially given their control of container production, should result in further trade action specifically targeting this issue. I also believe that the US needs to invest more aggressively in next generation container manufacturing technology.