This is largely due to surcharges related to diversions in the Red Sea being added to existing long term contracts, particularly on trades between Asia and Europe.
Carriers and shippers both have strong hands
TPM24, taking place in California next week, signals the start of negotiations with US importers for new long term contracts and carriers may point towards the global XSI®, plus a 180% increase in the spot market on the Transpacific trade since mid December, as justification for increasing rates in the new agreements.
On the other hand, US shippers will point towards the XSI® sub index for US imports, which remained relatively flat in February, down 3.3%, plus a now softening spot market, as justification for negotiating a long term contract more in line with their existing agreement at a lower level.
The million-dollar question heading into negotiations
Michael Braun, Xeneta VP of Customer Success & Solutions, said: “We have seen the impact of the Red Sea surcharges on long term rates at a global level but are we now going to see it on a regional level, particularly on the Transpacific?
“Importers into the US West Coast will say this is a problem between Asia and Europe and we’re not willing to pay more. Carriers will say this is a global problem because we have to redeploy capacity from the Transpacific onto other trades which are directly affected by the Red Sea diversions.
“This is the million-dollar question ahead of negotiations because both the carriers and shippers have extremely strong positions. The problem is they are some thousand dollars per FEU apart in what they are aiming for.”
The stakes are high
Imports into US East Coast are more directly impacted by the Red Sea diversions than the Transpacific.
Braun said: “Transpacific rates are driven by supply and demand, but imports into the East Coast are impacted by either the situations in the Suez Canal or Panama Canal. Both routes are full of negative consequences and an upward cost ticket is unavoidable.
“If I’m a freight professional shipping out of India to the US East Coast I am currently looking at a doubling of my costs on the spot market.”
Braun believes the situation will make contract negotiations difficult but that solutions can be found.
He said: “I am not expecting fast negotiations this year.
“Shippers can fix long term but if the Red Sea situation ends earlier than expected they could be left overpaying.
“Clearly there needs to be some flexibility built into the new agreements otherwise it is a big risk for both sides. It could be done through agreement to review after three months or an index to mitigate risk.
“It depends on the individual players but there has to be a variable element.”
Xeneta is set to launch the next generation of the ocean and air freight rate benchmarking platform in 2024 with previews being showcased at the TPM24 industry event in Long Beach, California on 4-6 March. Visit booth B37 for more information.
Source: Xeneta
