Service commitments, not prices, to take center stage in 2021 container term talks: sources

New Delhi — After the uncertainty that dominated the container markets through most of 2020, service commitments, rather than prices, are expected to take the center stage in the next year's term contract negotiations, according to sources.

"Going forward, even if a contract costs $100 per TEU [20 foot equivalent unit] extra, shippers won't mind as long as it gives them a guarantee on price and space, a source based in Singapore said.

Some companies that pay a premium on term contract rates have different perks such as their own block storage on vessels, their container storage at the port, according to Stephanie K Loomis, Vice President FCL Product, US and Canada, Vanguard Logistics Services. Their containers don't get mixed in with others. These kinds of services is what people are going to talk about now, she said.

The importing community in the US is very tired of the rate fluctuations on the spot market, and even somebody that only moves only a 100 containers a year is asking for a fixed rate, Loomis said.

Container rates on the trans-Pacific route surged to a record high in 2020 on account firm of demand from the US retail sector and an acute shortage of equipment in the Asian markets. A decline in imports, supply chain disruptions and logistical challenges in the wake of the COVID-19 pandemic continue to make the situation worse in Asia.

While carriers started charging last minute premiums for a secure space under spot bookings, those with long-term contracts also faced General Rate Increase (GRI) and Peak Season Surcharge (PSS). Shippers that had better contracts and managed to avoid the additional surcharges found their bookings rolled over to make room for lucrative spot deals, sources said.

"The BCOs [Beneficiary Cargo Owners] usually enjoy lower rates because of regular volumes, but this year they were denied space on account of the shortage as carriers wanted to capitalize on high paying spot contracts," a source based in Hong Kong said.

Relationships, mutual support grow increasingly important

Despite the volatility, carriers are most likely to honor their deals with shippers, which also honored the contracts when the spot market was lower than the contracted rate, according to sources.

Shippers that honored the higher contracted rate earlier are those that are finding it easier to get their cargoes on board now, and those who turned predatory when the spot market was lower are finding it more challenging now, Lars Jensen, CEO of SeaIntelligence Consulting said. "It finally boils down to your relationship with the carrier and to which degree you can make the carriers honor their contracts," he said.

Container prices on the Asia to US route have risen sharply over the last six months. According to Platts Container Rate 5-North Asia to East Coast North America, prices were at $4,800 on Dec. 11 from $3,250/FEU on July 24. On PCR 13-North Asia to West Coast North America, prices shot up to $3,900/FEU as of Dec.11, from $2,700 on July 24.

As of Dec.11, the Platts Container Index was up 118% from July 24 at $2,772.27/FEU.