Carriers continue to struggle finding sufficient volume to fill their ships on the Asia to U.S. trade lane. Demand started to soften last summer and has never fully recovered. While volume is expected to increase slightly heading into peak season, carriers are faced with a dilemma on how to handle rates.
Carriers have been trying to increase spot rates for the last several months. So far, their efforts have been futile. Over the last month, spot rates have been steadily decreasing. Carriers seem to be split on how to handle the current spot rate market. Some carriers are choosing market share over profitability by offering reduced spots in hopes of filling their vessels. Other carriers are taking a more cautious approach. Instead of slashing rates, they are pushing customers to honor the agreed upon volume commitments that exist under the service contracts.
Similar to the carriers, shippers are also split on how to handle the spot rate market. Some shippers are walking away from their contract commitments to take advantage of the reduced spot rates. Other shippers have decided the best course of action is to utilize their contract rates. Carriers cannot afford to lose money for an indefinite period of time. If spot rates continue to decline, carriers will begin walking away from the cargo.
Shippers choosing to ship at contract rates are doing so for a reason. First, shippers were able to negotiate very competitive fixed contract rates. Secondly, they understand that the low spot rates being offered in the market today will not last forever. Rates are cyclical and will eventually increase. When that happens, they recognize the importance of having a solid relationship with their service providers. Without a relationship, there is little guarantee that container allocations and rates will be protected. This could not have been more evident than the shipping chaos all shippers experienced during the pandemic.
The pendulum will eventually swing back in the carriers favor. When it does, shippers without a meaningful relationship will once again be subject to high rates and no space protection.