Early term contract discussion ranges for 2022-23 have risen significantly in the containers market, market sources told Platts, despite shippers hoping that spot rates would cool off in the coming year. Rather, early negotiations for the upcoming contract season, starting April, point to an unrelenting bullishness as the discussed price range is sharply higher than the current year, by between 20% and 100%.
"Some rates for Europe (from China) are between $5,000-7,500/FEU. For 2021-22, it was at $2,400/FEU, in 2019, it was about $1,800-$2,000/FEU. For Trans-Pacific East Bound, the initial indication for large BCOs (Beneficial Cargo Owners) are ranging from $5,300-$6,300/FEU," according to Peter Sundara, global head of ocean freight at a major cargo owner.
In 2021-2022, BCO contracts concluded at $3,000-$3,300/FEU for US West Coast and $4,500- $5,100/FEU for US East Coast, Sundara said.
"Negotiations for China-US trade are taking place at $4,000-$5,000 per FEU but this will most likely apply to the MQCs (Minimum Quantity Commitment) and the rest of the volumes will be booked in the spot market," according to Dave Li, branch manager, Chongqing City, for T.H.I Group Limited.
Although it's a bit early to say where the majority of rate levels will settle for the trans-Pacific trade, currently we see an 80-90% increase in the rates and final price at $5,000-$6,000 per FEU, a North American co-loader source said.
CARRIERS SHIFT FOCUS IN 2022-23 TERM NEGOTIATIONS
Carriers have started negotiations earlier than usual, and are even participating in discussions with mid-size forwarders, unlike in the past. However, some in the industry are shying away from long-term deals, sources said.
"The focus of some carriers will be on long-term contracts, like Maersk is very open about it, they want to offer maximum volumes to the BCOs and long-term contracts, but Hapag-Lloyd tells customers to go to spot markets. So, it depends on the carrier; Maersk is very reluctant to offer spot bookings," according to Rakesh Pandit, co-founder and CEO at CONBOX Logistics Private Limited (India).
Even for long-term contracts, many careers require BCOs to ship large volumes, sources said.
Last week, one major carrier was quoted saying they will only consider BCOs that ship 100 or more TEUs per week, according to John D. Reiser, vice president, Global Supply Chain, at Cannon Group, Incorporated.
This means the NVOs will still play a dominant role for smaller BCOs in contract season even though we are hearing Sea Shipping Lines like Maersk will stop working with NVOs and create their own internal NVO like division, Reiser added.
"Companies my size [2,600 TEU per year] will find it more difficult to receive fixed rates like we were able to in 2021," Reiser said.
CONTRACT TERMS AND CONDITIONS EXPECTED TO EVOLVE
The next year may be similar to the current, with respect to reduced space allocations at contractual rates, but the terms and conditions will evolve in several ways, sources said.
The carriers may push for "tiered pricing" wherein any volumes over the contract allocation are priced at a higher level, based on a percentage or dollar value, a North American co-loader source said, adding that container free time may be drastically cut, and penalties for retaining boxes past their allocated time will be enforced more rigorously.
Some carriers are also pushing for multi-year contracts in order to lock in high rates and avoid spot market volatility, the source said.
"If someone is going to sign multiyear contract, they'd be fools to not have a price checking element, like tying terms to an index so if rates erode then a reassessment is triggered," the source said.
In some other cases, the carriers are pushing for their full-scale offerings beyond just the ocean freight.
"Now, they tell shippers they will only be able to carry or release their bookings if they pay for the full package for which the carriers can now charge anything over and above the actual rate. And so, the shippers are left with no choice but to pay them," a logistics provider based in India said.
At the same time, many carriers are avoiding getting into contracts with freight forwarders as they blame the forwarders for taking spot rates multiple times higher than the contract rates in 2021, sources said.
Platts Container Rate 5 -- North Asia-to-East Coast North America -- was assessed at $10,000/FEU on Dec. 2, against $4,800/FEU a year ago. The Platts container assessments denote the FAK (Freight All Kind) spot rates. The all-inclusive premium rates are currently at $11,000-$14,000/FEU on North Asia-to-East Coast North America route and $16,000-$19,000/FEU for Southeast Asia-to-East Coast North America.