Shipper competition driving up ocean freight rates

9:57pm 22nd July 2021

http://dashboard.fps-group.net/news/news__230721_FPS_comp_NEWS.jpg

SHARE THIS ARTICLE

Facebook

Twitter

LinkedIn

A BATTLE of “shippers vs shippers” for equipment and cargo slots is helping to drive up freight rates and being used strategically by some shippers to compete with their rivals.

“There are clearly cargo owners now, particularly bigger ones, that have materially better conditions than the smaller ones,” said Vespucci Maritime chief executive Lars Jensen. “I also have a strong sense that some of these larger cargo owners will be using this for strategic competitive advantage.”

Speaking in a webinar, Mr Jensen said that those shippers with high volumes were more likely to have their volumes shipped and at better rates.

“Shippers are not all in the same boat,” he said.

This meant a large retailer fighting a small retailer in the same line of business could use a freight rate that is $5,000 lower than its competitor even if the larger one is still paying far above what it was paying last year.

The smaller competitor that cannot absorb the cost will either lose market share or be driven out of competition.

And rates would continue to keep rising as long as this competition occurred and capacity was insufficient for demand.

Introducing extra capacity was not possible as all available tonnage was already in use, and the shortage of equipment was being exacerbated by the slowdown of the supply chain rather than any innate shortage of boxes.

“It is delays that are pulling capacity out of the market,” he said. “The bad news is that it doesn’t appear that port congestion is getting better, so we won’t get access to more capacity any time soon.

“That means that in the short term the only thing that can balance supply and demand is a reduction in demand. Freight rates will continue up until the point where sufficient shippers abstain from booking.”

But shippers would still be facing high costs at least until the end of this year, Mr Jensen added.

“If we look at an absolute best case where nothing else untoward happens, there will be a gradual resolution on the bottlenecks, which takes time. If it was only a shortage of containers, it would still take three months to fix.”

He pointed to the labour disputes on the US west coast in 2015, where it took six months to work the delayed cargo through the system.

“If we are really optimistic, things could be back to normal by the end of November or December in operational terms,”

But the coronavirus remained a significant threat, he said.

The disruption at Yantian occurred because of a small number of cases being reported, rather than a large-scale outbreak.

“Could we have a situation tomorrow where we have five cases of the delta variant in Shanghai? If that is the case, there is a real risk that Shanghai could be degraded in operations like Yantian was. It is certainly a risk.”

Even smaller disruptions that usually meant nothing were now extremely important, he warned.

If a vessel has to come out of service, for example, there are no other available to replace it, leading to further delays and removing capacity from the market.

“All these small elements will make the problems worse until we get these bottlenecks resolved.”


By James Baker
Source: lloydsloadinglist.com

12:59am 19th July 2021
Ocean freight shippers urged to be ‘realistic’ on rates in unprecedented mar

Cargo owners warned they may need to renegotiate upwards any ‘too good to be true’ contract pric...

Read more

10:11pm 15th July 2021
South China port disruptions ‘could extend to Christmas’

Dwell times at the major ports in and around the south China city of Shenzhen “remain disruptively...

Read more

11:46pm 13th July 2021
Ocean to air conversions surge as box congestion issues worsen

Air freight exports from China and other parts of Asia are picking up again as worsening congestion ...

Read more

10:11pm 12th July 2021
Fight for volume allocation threatens higher contract rates next year

An early peak season will see high freight rates extend throughout this year as shippers struggle to...

Read more

Our Partners


Copyright 2021 © FPS Group All right reserved.