As contract bidding for 2017 starts materializing into a full swing, it is clear that shippers can no longer sustain the rock bottom low rates that they have continually slashed for their clients in the past six years. “2017 will be the first year of increasing contract rates since 2010 and this could come as a shock to some logistics managers who had gotten use to deflationary international transportation costs year after year.” said Philip Damas, head of Drewy’s logistics practice based out of London. Nonetheless, many shippers are coming into contract talks prepared with a recent survey conducted by the Journal of Commerce showing 46% of shippers prepping for an increase of 1% – 10% in contract pricing, and more than 20% of shippers prepped for increases in the double digits up to 20% higher than before.
Soren Skou, the CEO of Maersk Group stated that if container lines and ship owners keep their existing fleet, don’t place new orders, and maintain the current rate of scrapping, the industry would nearly match capacity with demand… in 2022. Nonetheless, this is still much too far off for most big shipping containers as overcapacity still plagues the market; and with new competitors eager to enter the market, specifically Korea Line through acquiring Hanjin Shipping’s assets. Of course, with such fierce competition in the trans-Pacific route, many firms that have tried entering the trade in the past have failed. With the selling of the Panamax container ship at the tender age of 7 years old only, Rickmers Maritime Trust has confirmed that it is the youngest vessel yet entering the demolition yard since the widening of the canal has made them obsolete. Of course, as contract bidding starts for 2017’s trans-Pacific trade, all container lines are now resolved to stand as a united front and bring rates back up to workable levels again in order to survive; and shippers know this and are willing to play along after the past couple years of cheap gluttony.
With many BCO customers concerned over the rapid merging of shipping firms in 2016, shaving the “Top 20” carriers down to the “Top 14”, many industry experts predict that this will powerfully change the bargaining power that shipping lines now have due to consolidation. This is clearly seen as all container lines across the board have brought up their 2017 rates back to workable levels for operation and survival. Such is a double edged sword though, with many customers now placing “a greater focus on (the) financial health” of the maritime carriers that they select, to make sure they are not the victims of a Hanjin repeat earlier this year, and thus, willing to open up their wallets for ‘safety’. Dama mentions, “We expect that ocean contract negotiations in the next few months – including the trans-Pacific ones in March – April – will be tougher for shippers and also more complex, so exporters and importers need to be equipped with the best data, sourcing technology, marketing practices and market insight.” With carrier instability, uncertainty of future alliance services, and impact of big ships on port performance are only a few of the “wild card” variables that have yet to play out in 2017.
Ultimately though, at the end of the day, no one knows what will happen as container lines and shippers meet at opposite ends of the contract negotiation table. It took the entire industry a long time to build up to this point, and there may or may not be a possible quick fix way to get out. With everyone muddling through the rest of 2016 and placing greater hope in the hands of 2017, the freight forwarding can only hold its breath and see what 2017 has in store for all of us.