Ocean carriers hold all the cards in contract talks with shippers

It’s annual-contract negotiation season for U.S. importers — and the hand they’ve been dealt couldn’t be worse. The deck is heavily stacked in ocean carriers’ favor.

Incredibly, Asia-West Coast spot rates are now nearing a base rate of $5,000 per forty-foot equivalent unit (FEU), not including a few thousand dollars of extra charges slapped on top. There’s talk that spot rates could stay strong until Q4, if not 2022.

Now is the time U.S. shippers negotiate annual contracts, which are usually finalized by May or June. The risk to shippers: If they don’t agree to much higher long-term rates than they’re used to, they could be even more exposed to spot rates, which would cost them even more.

The market “is beyond good for shipping lines and equally so on the other side, painful for shippers,” said Patrik Berglund, CEO of Xeneta, during a presentation on Tuesday. Xeneta collects data from forwarders and shippers on short- and long-term ocean contract rates.

“The carriers are seeing a substantial uptick in their long-term contract [rates] as we speak,” reported Berglund. “This has led to a situation where even a lot of big-volume players [on the shipper side] have seen increased spend. Some of them have not been able to conclude their RFQs [request for quotations] and have pushed them back because the spend increase they’ve seen has been too significant.”