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Zimu Liu, Dreamstime.com
Asia-Europe shippers on long-term contracts are beginning to feel the effects of an early peak season, with allocations under threat due to strong spot market demand and carriers demanding high premiums to carry non-contracted cargo.
“We’re definitely seeing the market hit a peak; carriers are taking the opportunity to hike rates and I’ve heard from other BCOs that their allocations are being cut,” one shipper told Лодстар today, adding that with fuel prices expected to rise as the US/Israel-Iran conflict continued.
“As well as the obvious rate hikes, Chinese factories are pushing for importers to take goods earlier to avoid higher production costs due to the fuel and inflation – another layer as to why the peak is here earlier,” he said.
Meanwhile, the ocean freight manager at one major European retailer claimed recent carrier behaviour towards long-term customers had become “unacceptable”.
“The carriers have, basically, returned to their normal behaviour, which is how they can squeeze as much out of this as possible.
“Potentially, this is an early peak season – we’ve got very high bookings at the moment, although we’re not sure how long that’s going to go on.
“We’ve gone out to the carriers to see how they could help, and some of them basically said ‘you’ve taken your allocation, if you want more, then you have to pay for it – and here’s a premium rate’.
“It’s just standard behaviour from them, and if this [Gulf] peace deal gets done, which I hope it does, then in four months’ time things will quieten down, and the carriers will be begging for our volume; and I am basically going to give it really hard to them.
He added that one carrier had unilaterally reduced his allocation during one recent week, by 10%.
“From a behavioural standpoint, it is completely grim – we’ve had major meetings at very senior levels and told them that that type of behaviour is absolutely unacceptable. Well, they’ve just done it again,” he said.
Peter Sand, chief analyst at freight rate benchmarking platform Xeneta, said many shippers that had been tempted to delay signing contracts due to the uncertainty created by the conflict, now faced rapidly escalating short-term costs.
“It’s time to face reality – this crisis has gone on too long, the freight rate spikes are too severe, and the geopolitical situation remains too volatile for shippers to recover the financial damage in the second half of the year,” he said.
“The question is, what can shippers do now to limit the full-year impact on budgets which have, once again, been blown apart by geopolitical conflict.”
According to Xeneta data for the start of June, average spot rates on the transpacific into US west coast are “set to exceed 80% above pre-Middle East conflict levels”, with the Far East-US east coast, Far East-North Europe and Far East-Mediterranean trades expecting “spot rate increases of +70%, +44% and +40%, respectively, compared with the end of February”.
“Those shippers that delayed locking into new long-term contracts in the hope the spot market eases as new supply chain networks are set up in the Middle East, cannot kick the can down the road forever.
“If they blink first and lock into a long-term rate now, they could limit the damage in the second half of the year, even though they may be paying more than they budgeted for. Continuing to play on the spot market could be costly, given rates are still on an upward trajectory during a traditionally slack time of year,” Mr Sand said.
However, with some carriers refusing to honour allocations, the European retailer’s contracts have been unable to protect him from further hikes as the peak season fully gets under way.
“The fact is, any additional volume is at premium rate. Now, the premium rate is not utterly ridiculous, but it is $500-$1,000 more per box, and that’s painful.
“And it is price-gouging; they just can’t help themselves,” he added.
And Mr Sand cautioned: “There is no hiding place from this market turmoil.
“Carriers entered the year facing a potential market collapse as services return to the Red Sea, but have ultimately found themselves able to charge higher and higher rates to shippers across the market willing to pay a premium to protect supply chains against global uncertainty,” he added.