- There are signs that the exponential rise in long-term liner contract rates is losing steam after 14 consecutive months.
- Ocean and air freight rate benchmarking platform Xeneta’s XSI long-term contract rate index fell 3.6% this month, following a decline of 1.6% recorded in December.
- The XSI decline could be a blip, but it could reflect carrier aspirations of signing-up shippers to long-term deals at all costs.
A recent news article published in the Loadstar states that long-term rate increases losing momentum as carriers seek to lock-in BCOs.
7.6% drop in the XSI’s European import component
Interestingly, there was a sharp 7.6% drop in the XSI’s European import component in January, the traditional month for many Asia-Europe deals to be concluded.
But despite the two-month dip in Xeneta’s data, provided by global shippers, it still means the long-term rate index has surged by 98% year on year.
XSI will be welcome news
And, although the decrease in the XSI will be welcome news for hard-pressed shippers and BCOs struggling to get back onto the front foot in their contract negotiations with carriers, it is too early to call time on rate hikes, says Xeneta’s CEO, Patrik Berglund.
“The logistics chain remains stressed, with demand outstripping supply, port congestion, a lack of equipment and the pandemic impacting key global trades,” said Mr Berglund.
“This puts the carriers in a position where they can dictate terms to shippers through elevated rates and limited availability, while locking-in ‘bigger fish’ at favourable prices.”
Indeed, this tough stance from the container lines is obliging many smaller, and even mid-sized, shippers to ‘survive’ on the respective carrier’s spot platform for bookings, causing high levels of financial and operational uncertainty in supply chains.
Moreover, the liners are on a roll of ever-increasing profitability, with the industry expected to report nearly $200bn in earnings last year, and the likelihood of even more this year.
Offering a rate-relief olive branch
Therefore, at present and as long as demand continues to outstrip supply, there is no sound business reason for carriers to offer a rate-relief olive branch to the shipping community. And even shippers ‘lucky’ enough to have secured contracts with carriers could find themselves exposed to hefty surcharges and big rate increases on renewal of deals.
It has been suggested to The Loadstar, by some freight forwarders that have seen carriers contact their shipper customers directly to offer them long-term contract rates, that their clients are being “sucked into” a cheap deal. only for the carrier to raise the rate at a later stage.
“We are fuming,” said an NVOCC contact. “The line quoted a new rate, which was high, but was in keeping with the current market, and we passed that on to our client; but the next day they had a call from the line undercutting the rate and have persuading them to sign a 12-month deal.”
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Source: The LoadStar
