How Shippers Can Navigate Spot Market As Ocean Rates Rise

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C.H. Robinson’s Ali Ashraf, director of North American ocean services, and Greg Scott, global director of LCL, provide insights on the current ocean spot rate environment as rates continue to rise amidst disruption. Shippers should expect volatility to continue, reports CDM Web Freights.

Rough Waters

The frenzied race to the finish line that we saw during contract season seems to be sticking around for this year’s ocean peak shipping season, amidst a lot of turbulence and uncertainty.

In the second half of April into mid-May, demand for space on Asia-to-U.S. ocean vessels started to pick up at a time when some carriers were using blank sailings to limit capacity in response to the lower demand seen after the Chinese New Year. Other trade lanes, such as exports from Asia to Europe and Latin America, also saw an uptick in demand, which caught the market by surprise.

The additional capacity that entered the market last year and in the first half of this year has not been enough to cover the re-routing of the Cape of Good Hope. Carriers have been looking to the charter market to cover the additional capacity needed. We are now seeing extra capacity being added to the U.S. West Coast via new strings and extra loaders.

However, no additional capacity is headed to the U.S. East Coast or Gulf Coast as of today in terms of new strings and even extra loaders. Some carriers that planned to bring in new capacity to these lanes have moved those vessels to the Asia-Europe trade lane due to the Cape of Good Hope re-routings as more assets are needed there and congestion has affected that lane at a higher rate.

As a result of the current market, spot rates kept climbing higher last month. Rates from China to North Europe more than tripled in May, for example, while rates from China to the U.S. East Coast more than doubled. Rates have only continued to climb higher this month, and carriers are now offering premium services to secure space for priority cargo.

Certainly, a key reason rates keep increasing is because of the ongoing risk of attacks on vessels in the Red Sea, driving carriers to reroute shipments far off course. But several converging events are also playing a role, like container shortages, port congestion, and an increase in container imports into the U.S.

What Shippers Can Do

Shippers can’t expect the current market volatility to go away anytime soon. As a result, they’ll need to play the spot market strategically.

With capacity tight and rates rising, shippers shouldn’t risk limiting their cargo to one specific carrier. They also shouldn’t confine their shipments to a single port given the challenges that some regions are experiencing – or could soon be experiencing – with congestion and potential strikes. Instead, shippers should consider diversifying their options to have greater flexibility in the carriers, capacity, and ports that they can use.

An established NVO that has relationships with all of the major ocean carrier alliances can give shippers access to more carriers, capacity, sailing schedules, and ports. When the market is challenging, we’re working through these options with shippers daily, helping reroute their freight when capacity is limited or a port becomes congested.

As shippers contend with higher ocean freight rates, uncovering savings will also be key. This can include using less-than-container load (LCL) shipping, where shippers only pay for the space that they use. In today’s market, LCL is also helpful to keep freight moving. For example, we’re working with customers to move some of their full container load (FCL) shipments to LCL to keep inventory levels at a manageable level while FCL capacity remains tight.

Lastly, if shippers exhaust their options on the ocean spot market, they can work with a transportation partner to convert shipments to air or expedited LCL services. Both will be a more expensive option than standard ocean services, but they can at least help shippers deliver critical shipments on time.

Answer with Agility

No single solution will help shippers avoid higher ocean rates. But they can potentially reduce the risk of higher rates and maintain timely deliveries by diversifying their shipping options and being adaptable during this fluctuating peak season.

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Source: Ajot