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Shippers seek multiyear deals to overcome pain of rising ocean rates

INCREASING numbers of shippers are seeking multiyear ocean shipping contracts to protect themselves against the elevated rate levels that prevail in both the spot and long-term markets, according to carriers

09 May 2021 - 19:00
INCREASING numbers of shippers are seeking multiyear ocean shipping contracts to protect themselves against the elevated rate levels that prevail in both the spot and long-term markets, according to carriers.

The long-term contracts, which can extend up to 10 years, according to Kim Pedersen, global head of sales and marketing at AP Moller-Maersk, are typically linked to either one of the rate indices or open-ended with a rate review every 12 months, reports IHS Media.



'With more and more customers, we are signing up for contracts that are way beyond the traditional 12 months,' Mr Pedersen. 'They could be two years, three years, five years, and even 10 years.'



A spokesman for Hapag-Lloyd confirmed the carrier has also noticed a trend of shippers seeking multiyear contracts, although he declined to elaborate.



Underpinning a desire to fix rates for longer periods are spot and contract rates that are at highly elevated levels compared with pre-pandemic 2019 on both the Asia-North America and Asia-North Europe trades, with little expectation of significant declines through the second half of this year.



Jens Bjorn Andersen, CEO of DSV Panalpina, said when it comes to the unpredictable ocean markets, he was advising shippers to at least lock in some longer-term deals to provide rate stability.



'If they can afford it, I always advise our customers to make some semi-long agreements, so at least they know what they are getting,' he said.



'Playing only the spot market is difficult, but if you cannot accept paying the high current day-to-day rate, then it is not a bad idea to make an agreement where you follow a freight index. You bear the burden when the rates are high, but you take the benefits if rates go down. You will not have to speculate on how the market is developing.



'Of course, if you locked in rates a year ago, that would have been super beneficial, but then everything is better with hindsight,' he added.



While the record increases have made multiyear contracts more attractive, Michael Braun, vice president of customer solutions at Xeneta, said the question was whether cargo owners would honour the contracts should the market turn.



'At the moment shippers are open to fixing prices for an extended period, but no one is going to want to be locked into higher contracts for three or five years,' he said.



However, Mr Braun said index linking was a way the longer-term agreements could be more flexible. 'Our customers are indexing their long-term contracts with the Xeneta Shipping Index (XSI) because they want a baseline for negotiations whenever the market is going down,' he said.


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