Excessive demand likely to mean higher contract rates next year on all modes

The early start of the sea freight peak season and its likely extension through 2021 and possibly up to the Lunar New Year in 2022 means the chance of current market rates softening significantly are slender, particularly as disruption in any region creates more congestion and delays, pressuring prices as shippers try to secure scarcer slots.

If they have the chance to ship, many importers have already started to move Christmas orders, to get their goods in the warehouse early, or at least on time. However this is coming with a premium to the budgeted cost.

This COVID-driven phenomenon is contributing to the early peak season we are seeing and means a continuation of high freight rates, and increased demand as shippers struggle to find space for their cargoes, whether by ocean freight, air freight, rail or overland.

And with the supply chain disruptions from the Suez Canal blockage and Yantian port partial-closure continuing to impact pricing and equipment availability, more incidents, accidents or disruptions will have disproportionate impacts.

With global port and inland infrastructure already at full capacity or exceeded, at many locations there is simply no possibility of handling more volume and the lines continue to struggle to recover equipment or even get a berthing window. It is easier for them to take a vessel out and blank a sailing, rather than operate all their vessels and add to the congestion. Many shipping lines are struggling to get their schedules realigned which has a significant impact on consistency and predictability of service.

The record-breaking rates being seen on the spot market are not expected to come down, as long as shippers are willing to pay premiums to secure space, in a restrained environment.

Even the biggest shippers (beneficial cargo owners – BCO) and forwarders with contracted volumes are impacted.

Although contracts are being honoured by most carrier partners, there is limited, to no, flexibility on the volume side. In the worst cases carriers are only honouring agreements for a percentage of the agreed volume, meaning further negotiation and alternative solutions need to be sought.

While the very largest shippers, such as the supermarket retailers, will generally be secure – even they will not get additional boxes moved against the tender rate – smaller volume contract holders have been cut off by the lines and forced onto the spot market completely, alongside those shippers who held off contract negotiations this year in the hope that freight rates might fall after Chinese New Year in 2021. It did not happen.

Both groups have been badly hit by higher rates in 2021 and will now be trying to guess what next year might offer.

With no signs of the situation easing, contracts will be agreed in a sellers’ market, where the carriers have no inclination to negotiate, and are quite happy to push BCO’s into the FAK market and 1,000 boxes a year is now considered paltry.

With strong demand for space and limited capacity likely to extend into next year, we encourage shippers with pending orders to contact us now, to get the most attractive options and protect their supply chain.

As we enter the traditional peak season for ocean and air freight it is critical that you book your shipments at the earliest opportunity, which is why forecasting is a key component within the current market.

Please contact us immediately to see how we can support the movement of your products to market or manufacturing locations globally. Metro will always provide you with all options and transparency in how to achieve your expectations and deadlines.