Ocean carriers are offering spot cargo from Asia at steep discounts as a “top up” for their far higher paid contract business.
However, rapid increases in bunker prices and soaring operational expenses indicate that pre-pandemic rate levels are not long-term viable.
The 22% increase in Hapag-Lloyd’s transport expenses per unit compared to the same period in 2021 was overshadowed by the company’s record $14.7 billion net profit for the first nine months of this year.
In addition to the considerable double-digit increases in other transportation costs, such as handling and haulage up 12%, vessels and journey up 14%, and equipment and repositioning expenditures up 17%, the highlight was a 71% increase in bunker costs.
In addition, there are further price increases on the way, including port handling and charter hire increases that will be significantly more expensive next year due to new wage agreements that outpace inflation.
The average pricing per teu on many deals is currently being considerably reversed as carriers temporarily adjust shipper contract rates closer to the level of the spot indices, if they haven’t already.
The impact of the spot rate contagion ahead of the transpacific and Asia-European tradelanes’ contract renegotiation seasons will obliterate contract carrier revenues the following year.
Furthermore, carriers have actively promoted what a director of a UK-based forwarder today referred to as “forward quoting” by “Chinese forwarders with false rates” in their efforts to fill their ships with low-paying spot cargo.
The practice “creates distrust amongst importers and their existing forwarders,” he continued, “by selling a rate that doesn’t exist yet to make oneself look to have outstanding rates.”
Because forwarder x or forwarder z is quoting a rate of “y,” forwarders who are unaware of the strategy being employed against them will criticize their liner reps for asking for lower rates. This causes rates to drop more quickly and causes the lines to collapse.
The line account managers “seem to have been given carte blanche” on rates to fill the ships this side of Christmas,” according to another UK forwarding contact who claimed carriers had “totally lost the price discipline they had had throughout the pandemic.” He stated that the big lines from China to the UK were offering him rates
While they still have base traffic at higher rates, he thought, “I suppose they can live with those rates, but what happens when those rates run out?”
In fact, despite the remarkable profits of the past two years, the liner sector may be entering yet another cycle of “survival of the fittest” or of the least-exposed if the supply/demand balance stays out of whack next year and average rates per teu sharply decline.
Everyone expected a sustainable rate level to be reached, but now it has gone the other way,” said Ryan Clark, co-owner and director of Westbound Logistics Services, a UK-based company with offices in China.
“Nobody wants to see a liner out of business as this will increase demand again and potentially inflate rates to an uncomfortable level for importers.”
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