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Shippers should expect to pay “bullish” carriers higher freight rates next contract season.

According to Ludwig Hausmann, partner at McKinsey & Company, upcoming freight contracts will be characterised by “very high” rates.

“Carriers in air, ocean and rail are being very bullish in the short term, but very insecure about the middle and end of next year,” he said during a webinar by Xeneta.

“Shippers that commit to certain volumes and block space capacity for the entire year might be in a position to benefit from carriers incentivised by long-term commitments, and therefore reduce the exorbitant yields a little.”

The key, Mr Hausmann advised, would be to “strike a balance” in the portfolio.

“Long-term contracted volumes could drive down the average price shippers will pay, but they should keep some volume reserved for ad hoc and short-term bookings when new capacity comes online,” he explained.

Thomas Sorbo, co-founder of Xeneta, agreed and added: “There might be a different market situation in March or April next year than what we have today [with limited capacity].”

He pointed out many shippers had been “fire-fighting” over the past few months due to a lack of equipment and blank sailings, “so they found themselves going more frequently to the spot market than ever before”.

Another factor influencing freight contracts will be the pressure on supply chains in the wake of the Covid-19 crisis, according to Mr Hausmann.

“Compared with pre-crisis levels, the demand to create more resilient supply chains, as opposed to cost-optimal ones, has increased dramatically,” he explained.

“The safety and security of getting supplies in the right quantity at the right time seems to trump cost efficiency, at least for the moment, meaning shippers will focus more on reliability.”

Mr Hausmann said the poor service reliability of ocean carriers and the continued lack of airfreight availability had created a “battlefield”, where forwarders should focus on securing contracted capacity for their most important customers and suppliers, despite the high rates.

“Committing to what you really need as a minimum capacity might be the name of the game for next year,” he added. “Because, while long-term commitments and big capacity bets are risky, the incremental approach of always being short-term could be more dangerous, as you end up either without capacity or with the most expensive capacity.”

Mr Hausmann also predicted an ongoing shift from air to ocean freight for many of the southern hemisphere trades, due to the wide disparity in lost air freight capacity resulting from grounded passenger fleets.

“For transpacific and China-Europe, the air freight capacity drop was actually not that bad; all the capacity shifted there as they’re the most important and highest-paying lanes.

“But any southern lanes going to South America, Africa, Australia and New Zealand, for example, have been cut in half, in terms of capacity.

“So we will see a struggle for the perishables exporters in Africa and Latin America, because the value density of these goods cannot be carried at higher rates, which might see a shift to cheaper ocean freight,” said Mr Mr Hausmann.

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