Drewry trims its projections for transpac contract rates

RETAILERS are preparing for the 2021 transpacific service contract negotiations that begin in March, reports IHS Media

24 November 2020 - 19:00
RETAILERS are preparing for the 2021 transpacific service contract negotiations that begin in March, reports IHS Media.

Drewry lowered its forecast for next year's service contract rates in the eastbound transpacific to US$1,900 to $2,000 per FEU because of uncertainty about economic recovery and regulatory warnings over general rate increases.

Previously, forecasts saw $2,000 to $2,500 per FEU, but the revised figures are still 46 per cent up from 2019 rates.

'Having seen the rate quotations of carriers for early transpacific bids, Drewry now expects contracts to settle at $1,900 to $2,000 [per FEU] next year,' said Drewry Supply Chain Advisor chief Philip Damas.

Pricing from Asia to the US east coast is usually $800 to $1,000 per FEU higher than the west coast rates.

The negotiations between ocean carriers and customers in the largest US trade lane usually begin in March and are signed by May.

Mr Damas doesn't see a repeat of this year next spring when west coast spot rates doubled from roughly $1,700 per FEU and east coast spot rates jumped 50 per cent from $2,500 per FEU.

'Our view is that ocean carriers will be influenced by the more critical questions raised by regulators, even if there is no formal action or investigation. Carriers will not want to be increasing rates and making much higher profits by deliberately keeping capacity below market demand,' said Mr Damas.

The contracts were signed last May when US imports were near their lowest in recent years due to supply destruction in China because of factory shutdowns during the early stages of Covid.

After lockdowns in the US ended in the early summer, US imports from Asia exploded, causing a 20 per cent increase each month since late June.

As a result, pricing power returned to the carriers during the four-month cargo surge. However, carriers attempted to shift gears from restricting capacity through blank sailings to increase capacity with extra loaders.

'We believe there will be a continuation of cancelled sailings. This is an important shift in the behaviour of carriers,' said Mr Damas.

'The carriers have managed capacity very effectively through the pandemic. That is a pretty effective strategy for them, and we will see more of that,' said Apex Maritime vice president Kurt McElroy.

'They all look at the profitability they are seeing right now and saying, 'Why should we go back to the previous model?' Retailers realistically are going to be budgeting for a lot higher rates in the coming contract year,' said Mr McElroy.

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