Changing Dynamics In Transpacific Contracts

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At the S&P Global TPM24 conference in Long Beach, California, discussions revolve around the annual transpacific contract tendering for Asian container imports for the traditional May to April 12-month period, says an article published on loadstar website.

Summary

  • Shift towards shorter contract durations observed in transpacific contract tendering for Asian container imports, deviating from traditional 12-month deals.
  • Shippers express reluctance towards committing to long-term contracts due to carriers’ initial rate increase requests perceived as unreasonable.
  • Despite recent declines in container spot rates, rates remain higher than previous months, influenced by factors like the spike in disruptions in the Red Sea.
  • Shippers emphasize the need for reasonable rate requests from carriers, alongside improved service levels and space guarantees.
  • Flexible contract structures are being explored by shippers, including shorter-term contracts with mid-term reviews, to address rate concerns while avoiding frequent tendering processes.

Shift In Contract Durations

This year, there’s a notable shift in the duration of contracts, with shippers expressing reluctance towards usual 12-month deals. Some feel that carriers’ initial rate increase requests are unreasonable, prompting them to consider shorter contract durations to avoid committing at potentially high rate levels for the latter part of the year.

Rate Fluctuations And Industry Landscape

Despite recent declines in container spot rates, rates remain significantly higher than previous months, influenced by factors such as the Red Sea disruption spike. Carriers leverage these disruptions to set higher starting points for their offers.

Shippers’ Perspective

Shippers, including Beneficial Cargo Owners (BCOs), Non-Vessel Operating Common Carriers (NVOCCs), and forwarders, acknowledge carriers’ increased operational costs due to recent events but emphasize the need for reasonable rate requests, coupled with improved service levels and space guarantees.

Flexible Contract Structures

To navigate the current market dynamics, shippers are exploring flexible contract structures. Some are considering compromises like shorter-term contracts with mid-term reviews to address rate concerns while avoiding frequent tendering processes.

Industry Concerns And Considerations

Despite increased demand and shifting cargo patterns, concerns persist among shippers regarding potential disruptions, such as strikes or industrial action, particularly with the upcoming expiry of the employer agreement with the ILA union covering US east and Gulf coast ports.

Conclusion

The TPM24 conference reflects the evolving landscape of transpacific contracts, with shippers and carriers navigating uncertainties and seeking mutually beneficial agreements amidst market fluctuations and potential disruptions.

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Source: loadstar