Digital Edition

January 2 2023

Issue link:

Contents of this Issue


Page 29 of 131

28 Journal of Commerce | January 2, 2023 Maritime The big picture: Aer a topsy-turvy 2022, shippers are hoping that dampened demand during the traditional peak trans-Pacific shipping season translates to better pricing power in annual service contract negotiations this spring. Shippers, carriers, and analysts agree that contract rates will be considerably lower than those in 2022–23 contracts, but how much lower is yet to be seen. A look back: Last year took shippers through the looking glass — with trans-Pacific volumes spiking from March through May and then declin- ing rapidly through the traditional peak season — culminating in an extremely unusual scenario: carri- ers renegotiating existing service contracts during what is normally the busiest time of the year. With the lengthy transit times of 2021 still seared into their memories, US importers frontloaded volumes into the first half of the year to avoid port congestion and the threat of US West Coast labor negotiation-related slow- downs. That led to a predictable falloff during the second half, but an unpre- dictably steep drop in cargo demand sent eastbound trans-Pacific spot rates nosediving over the last four months of the year. As average spot rates from A look ahead: The absence of a holiday container crescendo in 2022 will have a marked impact on contract rate negotiations this spring. In a sense, shippers and container lines are playing a high-stakes game of chicken. Shippers are hoping that overstocked inventories and slowing orders for goods will persist long enough to induce carriers to significantly lower contract rates. Carriers are hoping that the market bottomed out at the end of 2022, importers will be forced into replenishing inventories, and spot market rates begin to rebound before the negotiations end. Unlike the pre - vious negotiating cycle, when shippers scrambling for any available capacity locked in contracts as early as Decem- ber 2021, neither side is in any rush to negotiate before spring, meaning talks will likely return to a more traditional timeline of February through May. A new normal: Meet the new boss, same as the old boss. While many predicted eastbound trans-Pacific rates would settle at a level far higher than before the COVID-19 pandemic, 2023 contract rate levels are likely to more closely resemble those seen in pre-pandemic years, when capacity exceeded demand. The difference in 2023 is that vessel operating costs have risen significantly since 2019, so there will be pressure on container lines to maintain a floor on spot rates before they become non- compensatory. The smaller ves - sel operators that opportunistically jumped into a red-hot trans-Pacific market are leaving as historic spot rates vanish. Shippers may relish lower rates, but rates that dip too low chase off competition for the larger carriers and alliances, ultimately leav- ing them with fewer service options and less leverage in pricing discus- sions with remaining carriers. JOC email: twitter: @billmongelluzzo Asia to the West Coast plummeted below $2,000 per FEU in early Decem- ber from more than $11,000 per FEU in January, according to the Drewry World Container Index, the spread between hefty contract rates signed in late 2021 and early 2022 and plum- meting spot rates grew too large for shippers to ignore. According to freight rate benchmarking platform Xeneta, nearly all contract shippers renegoti- ated their annual contracts, generally for the duration of the contracts. The waiting game Shippers, carriers in no rush to negotiate annual trans-Pacific contracts By Bill Mongelluzzo In a sense, shippers and container lines are playing a high stakes game of chicken. Trans-Pacific shippers and carriers are waiting for more clarity on supply and demand before beginning annual contract talks. Trans-Pacific spot rates tumbled throughout 2022 Average spot container freight rates from Shanghai to Los Angeles and New York USD per FEU $10,000 $0 $10,000 $15,000 $5,000 L LOct Oct Apr Jan 2022 Jul Shanghai to New York Shanghai to Los Angeles L Shanghai to New York ghai t Dec 01, 2022: $4,408 22: $4,4 Oct Jul Dec 01, 2022: $4,408 4,40 Y-o-Y: -64.97% Y- Shanghai to Los Angeles to Los A Dec 01, 2022: $2,039 Y-o-Y: -78.98% Tra , Nov, 2022 $679 Source: World Container Index assessed by Drewry © 2022 S&P Global ANNUAL REVIEW & OUTLOOK 2023

Articles in this issue

Links on this page

Archives of this issue

view archives of Digital Edition - January 2 2023