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June 25 2018

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June 25 2018 | The Journal of Commerce 13 www.joc.com Cover Story were $1,445 per FEU to the West Coast and $2,463 per FEU to the East Coast. Some observers might say BCOs playing the spot market are paying higher rates than BCOs paid in their service contracts, and that's the way it should be. How- ever, others might say the market would have accepted higher service contract rates. The European Shippers' Coun- cil's Becquelin sees the disruptions caused by the surcharges as an opportunity for carriers and shippers to start from scratch and agree upon a new service contracting regime in which the base freight rate is negoti- ated alone by pricing specialists, and then later each side brings in other teams such as legal and accounting to negotiate a framework agreement that deals with all of the issues that aren't base freight rates. This would allow the teams to take a deep dive into key performance indicators, no- shows, minimum quantity commit- ments, and surcharges, he said. "That will take a real mind shift," Becquelin said. "The shipper should be treated as a partner of the carrier, which is too often not the case." JOC email: greg.knowler@ihsmarkit.com twitter: @greg_knowler email: bill.mongelluzzo@ihsmarkit.com twitter: @billmongelluzzo Emergency surcharges are a "none too subtle attempt to impose non-negotiable charges on custom- ers," he said. Ocean carriers expressed disap- pointment to The Journal of Com- merce over the finalization of annual service contracts they signed with their steady customers in the east- bound Pacific. Carriers had hoped to achieve rates of at least $1,500 to $1,600 per FEU to the West Coast and $2,500 to $2,600 per FEU to the East Coast, but the benchmark rates came in about $1,200 to the West Coast and $2,200 to the East Coast. Some of the largest accounts report- edly broke the $1,000-per-FEU barri- er to the West Coast and $2,000-per- FEU barrier to the East Coast. Asia-Europe shippers told The Journal of Commerce that despite carriers going in high, after nego- tiations, their contract rates were agreed at the same levels as those secured in 2017, while forwarders in the trade reported contract rates at levels below those of 2017. "It seems the carriers are trying to get the money that they couldn't get in the contracts," said David Bennett, president of the Americas at Globe Express Services." Did the carriers this spring pass up an opportunity to lock in higher service contract rates? The eastbound Pacific spot rates in the first week of June and forth between named and vari- able contract arrangements in order to achieve the best rate available at the time. The breakdown between fixed rate and variable rate accounts can vary considerably by carrier. Some carriers rely more heavily on NVOs and smaller shippers willing to play the spot market, so 60 percent or more of their business can be variable rate accounts subject to sur- charges. Other carriers historically have dealt mostly with larger BCOs and named account NVO contracts that aren't subject to surcharges, and those may represent 60 percent or more of their business. The spot market is a moving target that also has an impact on pricing, especially during service contract negotiations in the spring. Even in what is usually the slack period, carriers will attempt to keep the spot rates above the psychologi- cal benchmarks of about $1,000 per FEU to the West Coast and $2,000 per FEU to the East Coast because they don't want their BCO custom- ers to think they can sign for these low rates in their service contracts. Welsh said emergency surcharg- es "have no place in a modern liner shipping market" where costs and prices should be mutually agreed upon between customers and suppliers in their service contracts. $350 $370 $390 $410 $430 $450 $470 2-Apr-18 9-Apr-18 16-Apr-18 23-Apr-18 30-Apr-18 7-May- 18 14-May- 18 19-May- 18 24-May- 18 29-May- 18 3-Jun-18 8-Jun-18 Bunker fuel prices spike 19.4 percent from start of April Source: IHS Markit © 2018 IHS Markit Average cost of IFO 380 bunker fuel at Shanghai, Rotterdam, and New York-New Jersey $125 $175 $225 $275 $325 $375 $425 Jan- 16 May- 16 Sep- 16 Jan- 17 May- 17 Sep- 17 Jan- 18 May- 18 Bunker fuel prices climb Source: IHS Markit © 2018 IHS Markit Average cost of ISO 380 bunker fuel across Shanghai, New York- New Jersey, and Rotterdam

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