Dramatic cuts to services as lines battle to hang onto 'super-cycle' profits
Ocean carriers are preparing to implement the severest cuts to liner services since the beginning ...
Having succeeded in aggressively raising container spot rates during the pandemic, ocean carriers are now laying the foundations for a substantial uplift in annual contract rates.
Shippers and carriers traditionally start negotiations for the Asia-Europe trade in October and November, and for Asia to the US in February and March.
Maersk, for example, reckons around half of its business still comes from annual contracts with BCO and NVOCC shippers, but given the volatility of freight rates carriers have reported a bigger swing towards shorter-term contracts and spot business.
Container spot rates, as recorded by the Shanghai Containerized Freight Index (SCFI), have risen exponentially since May, particularly on the transpacific where the price to ship a 40ft container from China to the US west coast is currently some 200% higher than a year ago.
And on the Asia-North Europe route, rates are around 70% higher than 12 months ago.
Moreover, in practice, spot market shippers are paying considerably more to carriers in premium product fees to guarantee equipment availability and priority loading.
“Because spot rates tend to be indicators of contract rates, contract shippers and BCOs should start to budget for higher contract rates on most routes in 2021,” warned Drewry.
And it is clear, from comments to The Loadstar by UK-based NVOCCs, that carriers’ feel they will very much be on the front foot in the rate negotiations and are preparing to hit shippers with “significant” hikes for long-term contracts.
“Both our Asia carriers have warned us that their increases will be significant, and have recommended an early meeting to discuss our volume requirements for next year,” said one NVOCC source.
“Our problem is that it is very hard to get visibility from our customers beyond a couple of months, so it’s going to be a bit of a ‘finger in the air’ prediction for us if we sit down with the lines too early,” he explained.
However, the negotiation difficulties facing European shippers pale in comparison to those that could confront US shippers with transpacific carriers. Drewry suggests contract rates on that route could double.
“With Asia to US west coast spot rates currently at $4,000, versus 2020 contract rates typically closer to $1,500, ocean carriers could set their 2021 contract rates at $2,000, $2,500 or even $3,000 per 40ft in their next tenders,” said Drewry.
Rate negotiations for transpacific shippers will also be impacted by the loss of the APL brand on the route, according to Washington-based Jon Monroe, president of Jon Monroe Consulting.
“It may seem like a small thing, since CMA CGM already owned APL, but eliminating one of the carrier pricing teams means less competition and opportunity for rates in next year’s carrier negotiations,” he said.