Container lines are warning trans-Pacific shippers of significantly higher spot and contracts next year amid a wall of deep losses and weak demand but emboldened by a doubling of spot rates since mid-2016.
However, shippers aren’t convinced that the fundamental drivers around pricing have changed, setting the stage for fierce negotiations, the result of which could determine which carriers stay afloat in coming years.
Container lines seek new rates:
According to analysts and liner executives, Container lines are seeking eastbound rates of at least $1,500 per 40-foot container to the West Coast and $2,800 per FEU to the East Coast. The largest beneficial cargo owners this past year have been paying rates of about $750 per FEU to the West Coast and as low as $1,400 per FEU to the East Coast. That compares to rates earlier in the decade of about $2,000 per FEU to the West Coast and $3,000 per FEU on all-water services to the East Coast.
“The carriers are trying to take advantage of the current good spot market rate to secure rate increases for the tender market next year,” said Minseop Kim, head of the global sea pricing team with Seoul, South Korea-based Pantos Logistics. Eastbound spot rates have hovered between $1,750 and $2,000 to the West Coast during September and October, while rates to the East Coast have stayed above $2,400 since early September, according to the Shanghai Containerized Freight Index.
Consolidation spot:
Despite the rise in spot rates and the drumbeat of consolidation, with hints of more around the bend — Maersk Line announced on Dec. 1 that it will buy Hamburg Sud from the Oetker Group, aiming to close the deal by the end of 2017 — few shippers told JOC.com they expect significant rate increases. That’s because of the resilience of the No. 1 factor capping freight hikes: overcapacity. Unless something changes dramatically, container lines risk a repeat of the brutal 2015-16 contracting season, deepening industry losses set to approach $10 billion this year alone.
“The fundamental truth is that the vessels are still there. Unless scrapping increases at an increased rate, it appears from the trade data that they’ll be in an oversupply situation for quite a while,” said Michael Symonanis, Director of the Global Container Logistics Group at Louis Dreyfus, a major agricultural exporter.
Hanjin collapse:
Hanjin Shipping’s Aug. 31 collapse underscored just how fast carriers could deploy more capacity given the opportunity, as well as how weak discipline is. Carriers immediately increased capacity in the eastbound Pacific, primarily by deploying “extra-loaders” on the busiest routes. Hanjin had accounted for about 7 percent of total capacity in the eastbound Pacific, and the Korean carrier’s rapid demise caused hardly a blip in freight rates.
The estimate for shippers:
Shippers’ estimates for contract price increases run the gamut, from 10 percent to more than double what they signed for last season. For now, a majority of the roughly two dozen shippers polled informally by JOC.com say they are more focused on figuring out which carrier networks fit their needs and making sure to hedge against another Hanjin by contracting with stable carriers and those in alliances with more secure liner partners. Hanjin’s collapse stalled not only that carrier’s containers but also those it was handling for its CKYHE partners and non-alliance partners that had looser slot-sharing agreements.
“I find the consolidation very worrying for risk mitigation. We are going to have one less alliance to spread our cargo onto,” said Steve Hughes, vice president of supplier development, government affairs and logistics at Carson, California-based auto parts importer Centric Parts. “I know that my carrier relationships are definitely going to change. Two of my carriers are in the CKYHE Alliance, one is in O3 (the Ocean Three) and another was in the G6. All of a sudden, I’m going to have these four of my primary carriers under one alliance. I have to look to choose carriers in other alliances.”
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Source: JOC
