Shippers Warned to Be Flexible as Container Rates Spike 30%

Date: Monday, June 13, 2022
Source: Sourcing Journal

It’s not a good time to be a shipper as ocean freight rates continue their climb.

The latest industry data point, from Oslo-based Xeneta, has May clocking in the largest monthly jump on record for long-term freight contracts with a spike of 30.1 percent. The drive also equates to a 150.6 percent jump when compared to the year-ago period, according to Xeneta, which provides ocean and air freight research.

Xeneta CEO Patrik Berglund called the increase “staggering.”

“Just last month we were looking at an 11 percent rise and questioning how such continued gains were possible,” Berglund said. “Now we see a monthly increase of almost a third blowing the previous [Xeneta Shipping Index] records out of the water.”

Ocean freight rates are either negotiated via long-term contracts or the spot rate market for goods ready to be shipped within a shorter period of time.

Berglund pointed out that the trend in rates comes as carriers continue to see strong quarterly profits, while shippers are “being bled dry” amid China’s Covid-19 lockdowns and blank sailings or skipped port calls. That’s happening amid labor contract negotiations for the West Coast dockworkers that have since resumed after a reported temporary halt last month. It’s now expected a new deal may not be reached until after the current labor contract expires on July 1.

“Not as much cargo as anticipated has been moved over the last couple of months and, with the peak season approaching, that could cause added disruption,” Berglund said. “That leaves shippers in a position where they’re paying through the nose for services that, to be diplomatic, may not always meet expectations. It’s a very challenging time at present.”

Carriers, meantime, are estimated to close 2022 with operating profits of more than $300 billion, according to a report on container shipping from Drewry Shipping Consultants Limited. The projection equates to more than half a trillion in carrier operating profits generated over the past two years.

Market volatility makes future rate predictions difficult, Xeneta’s Berglund said, advising shippers to be “strategically limber” to navigate the challenges.

Soaring freight rates, coupled with late fees, over the past couple of years led to shipper cries of possible collusion among the carriers, setting off a two-year investigation into ocean liner practices by the Federal Maritime Commission (FMC).

However, no collusion was found with the FMC wrapping its investigation last week to reiterate record rates were the result of a supply and demand imbalance set off by the pandemic as low inventories were coupled with increased buying amid stimulus checks.

“The historically high freight rates experienced recently by U.S. exporters and importers have been devastating to many, but I want to emphasize that the Commission has done its job during the COVID-19 pandemic to enforce our competition authority,” Commissioner Rebecca Dye said at the time the report’s findings were announced.

Dye went on to say the “markets are competitive” and were propped up “ by unprecedented consumer demand.”

The FMC suggested the need for improved shipping contracts that are “mutually enforceable and binding,” which goes to the service point Xeneta’s Berglund brought up. Better contracts could serve to offer better protection to shippers when rates change.

The FMC report also cited its lack of “regulatory tools” to address late fees, such as detention and demurrage, levied against shippers and whether carriers are in compliance with the law when issuing the charges.

The FMC fined Hapag-Lloyd for 14 violations of the Shipping Act in April after determining the carrier had incorrectly charged Golden State Logistics detention fees. The judgement was in the amount of $822,220, which Hapag-Lloyd said it would look into at the time of the decision.

 

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