- Uncertainty in the Red Sea Creates a Negotiation Challenge.
- Rising Long-Term Rates Across Major Trade Routes.
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Market Data is Crucial for Smarter Freight Negotiations.
The prevailing uncertainty in the Red Sea creates a sophisticated ocean freight agreement negotiation environment. Expectations of a Middle East ceasefire have fueled rumours that container vessels will resume sailing to the Red Sea, which may cause a precipitous decline in freight rates. If carriers resume the shorter Suez Canal route while record numbers of new ships join the fleet, the market might experience a big capacity boost, driving rates lower, reports Xeneta.
Trends in New Long-Term Contract Rates
Xeneta analysis indicates that long-term contract prices for 2025 are up on the majority of the main fronthaul trading routes versus 2024. Of the top 13 global trades that have been reviewed, 7 out of 9 fronthaul routes have experienced rate increases.
Long-term rates have increased by 57% on far-east to North Europe routes compared to last year. To the US East Coast, shipments have increased by 44%, and to the US West Coast, rates are up by 64%. Even after these rises, new long-term contract rates remain far below current average spot rates.
Freight Negotiation Dynamics
Long-term rates higher than 2024 but lower than today’s record spot market may at first blush appear to be a fair middle ground for shippers and carriers. But taking a closer look at the numbers shows a more nuanced negotiation process.
Carriers are very likely aware of the danger that rates will collapse if container ships again pour into the Red Sea in huge numbers. To protect against this, they are urging long-term commitments, trying to pin shippers at current rates as long as they can. Shippers, however, are not eager to sign on for long-term agreements that would have them overpaying if market rates drop.
Short-Term versus Long-Term Contract Pricing
One of the trends observed in 2025 contract negotiations is the price differential between short-term and long-term contracts. The carriers have been providing deep discounts to shippers who are prepared to sign longer-than-six-month contracts. The discount for long-term contracts for Far East-to-North Europe routes was as high as 28%, while the discount for US East Coast shipments was 13%. On the West Coast US trade, the discount was minimal, at just 2%, though this level might increase as the US tender season unfolds.
The price difference represents the strategic tussle and tug-of-war between carriers and shippers. Carriers are employing discounts in order to encourage longer commitments and maintain market stability while hedging against future threats. Shippers, on their part, are attempting to stay flexible, unwilling to commit to rates that are likely to turn uncompetitive before long.
Risk Tolerance and Contract Strategy
The strategy for long-term contracts hinges on the risk tolerance of each party. Some shippers like to lock in rates for extended periods, valuing supply chain predictability and eschewing the risk of future renegotiations. Others are more willing to roll the dice, taking shorter-term contracts in hopes that rates will decline in the months ahead.
The Importance of Market Data in Negotiations
Under these volatile circumstances, proceeding into negotiations without knowing current market trends puts shippers and carriers at risk. Effective contract negotiations demand an intimate knowledge of long-term and short-term market averages, price variances throughout trade lanes, and the scale of rates being quoted by various carriers.
This dynamic situation also accounts for why index-linked contracts are becoming increasingly popular. Such contracts adjust automatically in response to changing market conditions, avoiding the need for successive renegotiations whenever rates increase or decrease. With so much uncertainty remaining in the picture, data-driven decision-making is more critical than ever for achieving good contract terms and risk management.
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Source: Xeneta
