News / More challenges for container shipping may be lurking as contract talks loom

13/08/2024

Supply chain managers need to be wary of more threats to container shipping – and how to mitigate them – as contracting season approaches.

The Red Sea crisis has magnified small cracks emerging within the market, leading to port congestion, container shortages, low schedule reliability, extended lead times and eye-watering surcharges.

“The situation is set to become even more challenging, with industry figures warning of further threats to global ocean supply chains,” warned Xeneta.

These include increased protectionism, heightened geo-political risks, more labour disputes and climate change-induced extreme weather.

“Procurement professionals are faced with the seemingly impossible task of managing ocean freight budgets against extreme market dynamics,” the analytics platform added.

Xeneta data, based on a shipper transporting 5,000 feu per month from the Far East to the US west coast – 50% moved on the spot market and 50% on a long-term contract – showed the monthly cost one year ago would have been around $10.4m. By the start of Q3 24, this had risen to just under $25.7m, forcing an additional $15.27m freight spend a month.

While recent data from Drewry’s WCI and Xeneta’s XSI indices show ocean spot rates may have reached a peak, costs are still astronomically high and long-term contract rates are rising.

So, with European and US shippers entering negotiations for new long-term contracts, understanding how to mitigate those potential risks will be crucial in setting next year’s budgets, urged Xeneta.

It notes that while procurement managers cannot influence geopolitics or force a large-scale return of containerships to the Red Sea, “they can use data to provide internal scrutiny and reassurance of freight spend and risk management”.

And Xeneta’s chief analyst, Peter Sand, added: “Effective internal budget processes make meetings with the finance director far more data-driven, efficient and productive, allowing the procurement manager to focus on the task of supply chain delivery and resilience.”