Fight for volume allocation threatens higher contract rates next year

10:11pm 12th July 2021




An early peak season will see high freight rates extend throughout this year as shippers struggle to find space for their cargoes.

“We have seen that companies are starting to move Christmas goods already, which usually started slightly later,” said Thorsten Diephaus, a director at rates visibility specialist Xeneta. “At the moment, if shippers have the chance to ship goods, they are taking that chance and putting the goods in the warehouse already.

“Therefore, strong demand will go on this year and there is probably no relief in the short term.”

He warned that supply chain disruptions from a number of incidents, including the Suez Canal closure and Yantian port congestion, continued to have a strong impact on pricing and equipment availability.

“It seems the slightest incident that happens somewhere in the world could have a massive impact still on different corridors,” he said during a webinar.

Inland infrastructure, particularly in the US, remained at full capacity and additional constraints such as the Suez Canal blockage had stretched infrastructure even further.

“It is hardly possible to handle additional volumes or get a berthing window so sometimes it is easier to take out a vessel from a loop and have a blank sailing rather than sail all the vessels and increase congestion,” he said.

Xeneta noted 17 blank sailings on the Europe to US east coast alone in the next 12 weeks, representing 8.6% of capacity.

“We need to be extremely cautious. If there is another Covid-19 outbreak and terminals have different levels of utilisation this will have an impact on different regions.”

Xeneta is still seeing record-breaking rates on the spot market and does not expect any slowdown soon.

“It just depends how urgent it is for shippers to ship containers,” said Mr Diephaus. “It doesn’t mean that the market as a whole is at $15,000 per feu on Europe-Asia, but for sure people are willing to pay these sorts of amounts.

“If you need to deliver stuff to your customers in a fixed time, then it is cheaper to pay this high price to secure the space.”

Even those with contracted volumes were not immune, he added.

“Contracts are mainly being honoured, but you don’t have any flexibility on the volume side,” he said. “We have seen cases where carriers are not taking 100% of awarded volumes and are only honouring agreements for a percentage of that volume. What you do see at the very low end it is very difficult to get your cargo shipped.”

Whereas in the past there may have been a 20% flexibility in weekly volumes, that no longer existed.

“It depends a bit on the size of the shipper,” said Mr Diephaus. “We have also heard that some have had to move back to the spot market completely, but overall awarded volumes are being honoured, but shippers can’t get additional boxes moved against the tender rate.”

With no signs of the situation easing, there were already concerns over next year’s tendering season. Many shippers who this year held off in the hope that freight rates might fall back had been badly hit by higher rates and are already trying to read the runes on what next year might offer.

Those shippers that did not agree long-term contracts were fully on the spot market, Mr Diephaus said. “That market will change but no one knows when. Will next year’s tenders be at a lower level than 2021? Most probably not.”

By James Baker

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