Yang Ming says shippers taking time to commit to contracts as rates fall
Transpacific contract negotiations with shippers are taking longer as rates are expected to fall sharply, ...
Logistics and purchasing managers buying air freight services are often heard complaining that they lack clear visibility on market prices.
However, a recent, successful, initiative in the sea freight industry might just point towards a possible solution for this predicament – and largely, it is up to shippers themselves to create such visibility.
Norway-based Xeneta has developed a platform for shippers to upload the pricing details of their long-term and short-term deals with shipping lines and forwarders. And on the basis of the quid pro quo principle its clients can then compare their achieved price levels with those of the ‘market’.
The primary focus of Xeneta is to provide the shipper’s purchasing teams with up-to-date information on market pricing. This lesser focus on defining market volumes is different to the info made available by existing providers of air cargo market data.
The big advantage to this approach is that that you don’t need to cover the full market to provide an accurate description on what market prices are. Which means that with just a relatively small group of shippers, valuable information can be created.
For example, one of Xeneta’s recent analysis indicates that there is no direct link between the size of the shipper and the competitiveness of the freight rates they were able to achieve. This is likely caused by the fact that large shippers often go ‘long’ with their contracts – rates are fixed for a period of up to 3-12 months.
In contrast, smaller shippers go ‘short’. And over the past 18 months, Xeneta analysis shows that the worsening demand-supply ratio in the sea freight industry made it financially more attractive to go short, than to go long.
One could be forgiven for thinking that this increase in transparency would create an even more erratic and opportunistic buying behavior, with shippers abandoning their contractual commitments the moment ad hoc rate levels fall below contract rates. As is common in the air freight industry, such a change in tack would come at no penalty.
However, according to Xeneta, around 98% of its client base upholds the contract conditions throughout the agreed period. Their pricing platform is mainly used to determine and adjust the pricing strategy – not to become more opportunistic.
If there truly is a need for shippers to get a better visibility on air freight rates, then it will be only a matter of time before these developments in the sea freight industry are replicated in the air cargo industry. There are already proven data sharing initiatives in the aviation industry in general, and for air cargo in particular.
So the main questions is – who will embrace this opportunity to create more visibility on air cargo prices for shippers?
Niall van de Wouw is managing director of CLIVE. He can be reached at [email protected]
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