Although the decline in ocean shipping costs might seem to be good news for American merchants, delays are now to be expected as some carriers attempt to maintain prices by cancelling voyages, as reported by Reuters.
Pandemic interruptions
During the greatest pandemic interruptions, retailers paid as much as $20,000 to relocate a container of products.
At a significant U.S. ocean shipping conference in Long Beach, California, this week, experts warned that carriers like MSC and Maersk (MAERSKb.CO) are seeking to raise prices by cancelling voyages, which could spark a new round of cargo delays as containers were bumped from one ship to another.
The TPM23 event serves as the unofficial start of the container shipping contract negotiation season, during which carriers and their U.S. clients, including Walmart Inc (WMT.N), mom-and-pop shops, and exporters of all stripes, negotiate yearly volume and price deals.
Because the Asia-U.S. trade route is the most profitable for carriers and because those contracts set the tone for negotiations in other countries, those widely monitored and frequently acrimonious negotiations are important.
Any cost savings for the shipper from those agreements might be offset by a new problem, late deliveries.
In January, 17 trips were reported cancelled by the Port of Los Angeles, and more are expected.
Customers switching
“If (carriers) keep bumping containers, we could end up missing Christmas,” said Isaac Larian, chief executive of Southern California toymaker MGA Entertainment.
Almost 75% of shipments of items like Rainbow High and L.O.L. Surprise! dolls have already been moved by MGA’s staff from the long-term contract market to the short-term spot market. According to Larian, the corporation is paying about $1,150 per container, which is a cost savings of more than $18,000 from the peak.
When pandemic-weary customers switched their spending from products to leisure and entertainment, volatile spot rates were the first to fall. According to Peter Sand, chief analyst at air and ocean freight rate benchmarking platform Xeneta, the difference between spot and contract rates is now shrinking under pressure from the prospect of a recession and competition to fill ships.
Shippers’ revenge
Carriers made record profits when demand was booming by concentrating on the most profitable cargo. Companies like Walmart, Costco Wholesale Corp (COST.O), and Dollar Tree Inc (DLTR.O) chartered ships to keep shelves stocked as critical consumers had to compete for space.
The situation has now changed, and shippers request compensation for the often quadrupling cost of their ocean freight.
Jon Monroe, a business consultant and the North American representative of Singapore-based Transfar Shipping, whose investors include Alibaba of China, called it “shippers’ retaliation” (9988.HK).
“There was a time when everyone sought a win-win situation. COVID completely derailed that “said he.
Once devoted clients are now aggressively browsing about, diversifying their purchases, and engaging in spot market gambling, according to experts.
According to Lawrence Burns, a consultant who previously handled negotiations with Hyundai Merchant Marine, the nonbinding nature of ocean contracts encourages clients or carriers to fight for whatever they can obtain when power swings their way.
Expenses skyrocketed
The advantage is now with the importer and exporter shipping managers, whose expenses skyrocketed when they were unpredictably compelled into the exorbitant spot market.
“Too many times in the past two years have they been summoned to the CEO’s office. They’re returning for revenge, “burned out.
MSC Vice President Allen Clifford responded, “I think some are,” when asked if major clients were agreeing to contracts at prices close to spot rates. On stage at TPM23 on Monday, Soren Toft, CEO of the largest carrier in the world, declined to comment.
Clients and carriers seldom disclose contract negotiations, but on recent earnings calls, representatives from Walmart, the top U.S. container shipper, La-Z-Boy, Mattel Inc. (MAT.O), and Yamaha indicated they anticipated benefiting from lower costs.
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Source: Reuters
