Date: Monday, December 20, 2021
Source: The Maritime Executive
Following early forecasts that ocean freight contract rates were likely to come in at much higher levels for the year ahead, shippers are now reporting that carriers are presenting difficult choices in their tenders for 2022. Analysts at Xeneta, the rate benchmarking and market analytics platform are reporting that the first contracts for 2022 are reflecting record-high levels ahead.
A review of the first round of tenders presented to shipping shows that carriers are offering record-high rates which the shippers are trying to balance with their needs for stability and predictability for their supply chains in the year ahead. Shippers were forced to accept record high rates in 2021 while the carriers’ capacity remained constrained and schedule reliability declined to record low levels. In addition to delays due to port congestion and backlogs at the terminals, shippers have had to accept limited capacity and an increasing number of canceled voyages due to the inability to keep vessels on schedule.
Xeneta reports that the lowest proposed contract prices are being offered by carriers that are adding in additional conditions, such as requiring shippers to agree to either extended contract periods or wider logistics agreements. Conversely, the highest prices are from freight forwarders, though they are also offering some shippers competitive rates compared to the traditional carrier offerings. Traditional contracts from the major carriers are bidding prices midway between the extremes of longer terms contracts and broad logistics agreements and using freight forwarders.
“For shippers, the question has to be are there any real alternatives to agreeing to these record-high rates?,” asks Peter Sand who recently assumed his new position as chief analyst for Xeneta after leaving BIMCO. “Or are they at the mercy of carriers who are enjoying their current position of power?”
Xeneta cites examples from its data of the rates being proposed for 2022. On the China to North Europe trade, they calculate the average of the bids that have come in at $11,900 per FEU, “a considerable increase for all shippers compared to long-term contracts signed in 2021.” They noted that there is a wide range of offers being proposed in the market at this point. Similarly, while the tender process is much earlier for the China to US trade, Xeneta calculates the current average at approximately $5,700 per FEU. Xeneta sees the same price brackets on trades out of Europe to both the Far East, with an average of $1,900, and the US East Coast, with an average of $5,700, though they report the range of prices is much narrower.
“Though the absolute level of the long-term rates coming in may leave you ‘gobsmacked,’ the fact that they follow the spot market should come as no surprise as the long- and short-term markets are correlated,” explains Sand. “While it may be tempting to go for the lowest price offered, differences in what is being offered mean the implications on the wider supply chain should be considered.”
The factors that have been at play in the container shipping markets in 2021 Xeneta expects will largely continue into the year ahead. They, however, noted that given these much higher prices, shippers deserve much better service. This includes containers arriving within a reasonable time, at the desired port, and at the agreed price, says Xeneta.