- Kyle Henderson, CEO of supply chain visibility provider Vizion, suggested that when it comes to deciding, shippers should look at the value of the goods they are transporting.
- He explained: “Guaranteed capacity, depending on transit times, is only available for premium spot rates.”
- And when it comes to high-margin goods, these shippers naturally lean toward long-term contracts with sporadic spot bookings.
When choosing between the spot and contracts markets to purchase ocean freight services, shippers should take into account whether their products have high or low margins, according to the advice given to conference attendees at this week’s Reuters Supply Chain Europe conference in Brussels as reported by The Loadstar.
Curtailing capacity
According to Kyle Henderson, CEO of supply chain visibility company Vizion, shippers should consider the worth of the items they are delivering before making a choice.
“Shippers of low-margin goods will probably do better shortly to play the spot market rather than signing long-term contracts,” he added. “You may be a price-taker for a while, but prices will go further down because the carriers could lose greater volumes, but still earn money.”
However, he also cautioned that spot market shippers can occasionally find it difficult to find accommodations if carriers try to curtail capacity to alleviate pricing drops.
Guaranteed capacity, subject to transit times, is only offered at premium spot pricing, he clarified. Furthermore, these shippers naturally choose long-term contracts with intermittent spot bookings when it comes to high-margin items.
What should be the benchmark?
“But, if you are signing these contracts, be very careful of adjustment factors, because with rates declining as quickly as they currently are, you may not want to sign for more than 12 months. Going above a 12-month contract could result in you paying significantly higher prices than premium spot rates.”
However, Mr Henderson continued, long-term shippers can have an impact on adjustment variables like the index to which an agreed rate might be tied throughout the length of a contract.
“What should the standard be? I believe shippers have some sway over whatever adjustment factor to select, but carriers will push for the one created by Container Trade Statistics (CTS), which they have produced and own, rather than something more neutral like the FBX or SCFI.”
Forging stronger alliances
Even though he acknowledged that the previous two years had been extremely stressful for shippers, he added: “Shippers can build a more direct relationship with carriers, even if you are a small shipper,” suggesting that there may now be an opportunity for shippers to forge stronger alliances with shipping lines, perhaps at the expense of freight forwarders. The decisions freight forwarders make on behalf of clients will be best for them, not necessarily for the shippers; they are still playing the arbitrage game.
“I see this an opportunity for shippers to deal directly with the carriers because the carriers have reorientated themselves – they have made the vertical integration investments to enable them to also have those relationships,” he said.
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Source: The Loadstar
