Carrier Optimism Wanes

As 2023 draws to an end, there is a lot of uncertainty on whether the 2024 Asia-to-U.S. market will be profitable or disastrous for the carriers. Unfortunately for the carriers, early warning signs indicate that the latter will prevail.

The biggest issue carriers face is overcapacity. Until that issue is resolved, the carriers will continue to burn through cash. The carriers were extremely profitable during the pandemic years. This has allowed the majority of carriers to have enough cash reserves on hand to last several years.

The latest projections indicate that it will be 2025 before a full rebound in the container market takes place. If this holds true, the carriers will be faced with some very tough choices moving forward. Overcapacity can only be resolved in one or two ways. Preferably for the carriers, demand matches available supply, which in turn stabilizes freight rates. Less preferable, carriers employ the costly tactic of canceling sailings or eliminating entire vessel rotations.

Canceled sailings have become the norm in the Asia-to-U.S. market over the last six months. Even so, industry experts are surprised that the carriers have not taken more drastic actions to gain control of the spot rate market.

Spot rates have been unstable since the beginning of 2023. Experts predict the spot rate will continue trending downward heading into 2024. This is horrible news for the carriers if spot rates continue on that trajectory. Shippers that sign annual contracts pay close attention to the spot rate during the January–April contract negotiation period. If carriers are unable to increase spot rates, shippers will allude to spot rates and push for lower fixed contract rates.

The carriers are well aware of how 2024 contract negotiations are trending. It is not a pretty picture for them. They will make every effort to reverse the course of spot rates over the next few months. They have been unsuccessful in reigning in the spot rate since the beginning of 2023. There is no reason to believe they will have any better success prior to the new contracts being finalized.

Unless carriers take drastic actions regarding available capacity, shippers hold the upper hand heading into 2024 contract negotiations.

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