IN the trans-Pacific shipping market, the annual contract season is drawing to a close, and the prices agreed upon in the coming weeks will have a significant impact on US import costs, liner profitability, and service reliability, reports New York's FreightWaves.
The current contract RFP season is taking place during a period of still-declining spot rates, and the previous round of annual contracts was signed at historically high levels.
Inbound volumes remain weak due to bloated inventories, similar to the situation in spring 2020 during the Covid lockdowns.
The risk is that if shipping lines are unable to secure enough contract business at rates that cover their costs, they may resort to cutting more capacity in the trans-Pacific, similar to what they did in 2020.
However, if shipping lines cut capacity at the same time that import demand picks up in the second half of the year after inventories are depleted, spot rates could increase, and shippers with cheap annual contracts may find their contract cargo bumped by carriers moving higher-paying spot containers, as happened three years ago.
"Most fixed contracts will have to be finalized by the first week of April," said Flexport vp Nerijus Poskus.
"Some of the big BCOs [beneficial cargo owners] have already signed, and I think we are going to be next."
"I am hearing that the big BCOs are signing rates proposed by carriers that are higher than the spot market," said Mr Poskus.
"The next two weeks are crucial. While the final outcome of rate negotiations won't be known until April, Mr Poskus expects contract rates will be around US$300 to $500 per forty-foot equivalent unit above current spot rates."
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