As global trade disruptions this year have pushed shipping costs sky high, many customers and regulators have made it clear that they feel enough is enough - and steamship lines are listening. The French-owned CMA CGM and German carrier Hapag-Lloyd have suspended spot rate increases, indicating a yield to the pressure of their customers and confidence that contract levels will increase and spot prices will steady. Moreover, rates between the U.S. and China are seeing a sudden drop this week due to several factors at play.
However, some carriers are still charging significant premiums in addition to spot rates to help guarantee bookings, potentially canceling out any "spot-rate freeze" favorable views from their customers. Nonetheless, the spot rate increases are planned to remain frozen until beginning of 2022 for CMA CGM. Meanwhile, Hapag-Lloyd is reviewing scheduled increases to potentially continue the suspension. Other container lines may follow the trend soon, although they have remained quiet on the issue so far.
Despite these efforts by carriers, the underlying market issues causing the spot rate increases continue. Congestion in ports worldwide remains high, with significantly higher dwell times in many ports compared to this time last year. These persisting market factors mean that spot rates may continue increasing regardless of carriers avoiding individual general rate increases. Some steamship executives are claiming that they are not convinced rates have truly peaked due to the apparent problems that remain in the global supply chain.
The U.S.-China Exception
To add further uncertainty, the sudden drop in rates this week between the U.S. and China are going against the trends elsewhere. Factors pushing this regional dip include:
● The energy restrictions in China causing a slowdown in manufacturing
● The shipping industry “off-season” being right around the corner
● The oil spill off the coast of California causing market speculation
In four days alone, the rate for 40-foot containers on this route dropped more than 30%. Similarly, the rate going to the East Coast also fell about 25%. Despite these drastic changes, overall rates on the market remain high.
Shifting Focus
The spot rate suspensions come from the perspective of carriers that have established profitability for the year and wish to focus on growing volume through contracts. Therefore, they are now setting their sights on longer-term contracts with higher rates, using the spot rate freeze as a trade-off. For example, data from Xeneta show that rates on average contracts of 90+ days are up 125% compared to 2019.
The rate-freeze may even signal an oncoming pricing war shortly if other carriers join the action. However, it remains to be seen if other carriers will follow suit, if these actions truly speak to a potential peak in rates across the market, and how much shippers will benefit in the coming months.
As ocean freight rates continue to fluctuate, it’s important to stay on top of market trends and news. Let ClearFreight take care of you. Our team of supply chain specialists stand ready to help you save money and time by offering customized solutions and expert advice. Contact us today!