In Transpacific Eastbound traffic, we are experiencing an unusual period.
Traditionally, up until now, rates for the next contract season, which usually runs from May to May, would have been finalized with a hard stop by the end of April or mid-May. This means you wouldn’t be able to negotiate a contract after this date. Of course, each contract is different but usually, this has been the norm for the greater population. This changed as soon as the Covid-driven shipping surge was over. Then the tables turned, and the importers who have regular cargo shipments had the upper hand. This year, ocean carriers have really been feeling this, and it has a direct effect on rate levels.
Also, the events in the past three years were a huge learning experience for the importers who otherwise haven’t paid this much attention to ocean freight rates and contract negotiations. In addition to this, technological enhancements and access to easier access to information is also playing a big role.
The Importance of Technology in Driving Changing Shipping Contracts
If we need to pinpoint one specific area where recent technological enhancements affected ocean shipping, other than the visibility and the process improvements, it is the transparency technology has brought to ocean freight rates. Technology companies such as the various paid platforms who had ambitions to provide online rates and become Expedia-like public freight rate platforms, as well as public postings on LinkedIn or direct messages from multiple freight organizations, have made rates become more transparent in the market.
When it comes to contract offers currently, few offers have been finalized. But, for most importers who will sign a fixed-rate deal, it is still a waiting game in the expectation of rate levels decreasing further. Regardless of the push from carriers to close this period, most importers are still hoping to get a better deal.
There are many reasons that this year’s contract season has proven to be an unusual one.
Here are some of the top reasons that this year’s contract negotiations are taking longer than usual:
1. High-Risk Environment
2024 is the riskiest year on record per the S&P Global World Risk Outlook Index. The ongoing conflict between Russia and Ukraine, the Middle East conflict, and other major global events add further complexity to global supply chains.
2. Dissolving Shipping Alliances
Major changes in key shipping alliances add complexity to this contract season.
3. Ocean Carriers’ Independent Decisions
Carriers are acting more independently this year, with rate gaps on base ports where the status quo was similar rate levels among most carriers.
4. Extra Space
The market is overflooded with extra vessel capacity, and regardless of most carriers taking longer to arrive at U.S. ports, there is still enough capacity to absorb volume increases. Furthermore, new services and new carriers are still being introduced into the market.
5. Carriers’ Commitment to Contracts
Importers realized that contracts matter, but can be renegotiated in the event of a major event. Carriers did what they could during the hard times, but contract allocation and commitment were poorly managed overall. It has had profound effects on the perception of the seriousness of rate contracts, which carriers are now experiencing firsthand.
It’s never a dull moment in the world of shipping, and this year’s contract season period is proving to be different.
Now, more BCOs than ever have a better understanding of market realities, and naturally, they are acting for their benefit, just like carriers did during the Covid years.
As the shipping industry is going through this year’s contract season in Transpacific Eastbound traffic, it’s evident that traditional norms have been disrupted by a various factors. The dynamics of supply and demand, coupled with technological advancements, have reshaped the negotiation landscape for importers and ocean carriers alike. In this high-risk environment marked by shifting alliances and unprecedented global events, the need for flexibility and strategic decision-making is becoming more crucial.
To remain competitive, it is important than ever before to understand historical precedents and emerging dynamics.
