US retailers face arguably the most difficult trans-Pacific service contract negotiations in recent memory with freight rates soaring, in some cases, to twice the normal rates and causing havoc to transportation budgets.
Faced with persistent cargo delays North American importers often have had to pay premium prices to just guarantee loadings and equipment availability.
Those premium rates can push the total cost to ship a container from Asia to the West and East coasts above US$6,000 and $7,000 per FEU, respectively, according to non-vessel-operating common carriers (NVOs).
In addition, there's detention and demurrage fees piling up, as clogged marine terminals in Southern California prevent the timely pickup and return of containers and chassis.
Now entering annual contract negotiations, shippers face pressures to curb the amount of so-called free time allocated along with resistance from carriers to expand minimum quantity commitments (MQCs) unless rates are significantly higher.
There's little doubt that contract rates will be significantly higher from the range of last year's rates of $1,300 to $1,400 per FEU to the West Coast and $2,300 to $2,400 per FEU to the East Coast. And dauntingly, there's little short-term relief on the horizon when it comes to better container availability, the biggest driver of sustained congestion and elevated ocean rates, reports IHS Media.
But most alarming for retailers is carriers' resistance - displayed over the last 10 months - to adjust volume allocations set by MQCs in service contracts, forcing shippers to pay extra for additional space either via the carriers or forwarders.
That key lever has insulated them to a degree from carriers rolling their cargo in favour of higher paying freight or having to shell out extra to guarantee additional space within weeks rather than months. But this year, carriers are reportedly telling retailers and forwarders that unless they are core customers with large cargo commitments, their MQCs likely will not be increased.
Logistics managers are under more pressure from the C-suite to contain transportation costs, and to a degree not seen since the West Coast port crisis of 2014-15, when some logistics managers lost their jobs due to stockouts.
In a sign of the leverage carriers enjoy in contract talks, some have been willing to start earlier contracts to expand their MQCs, choosing to sign 16-month contracts from January 1 through April 30, rather than wait for the traditional May 1 through April 30 period.
In the wake of contract finalisations, retailers' frustrations - with service levels, the scale of rate increases, and having to pay for some so-called premium services that simply provide a regular level of service - will linger.
Shippers may need to accept higher rates, tighten their free time allocations, and give up the days of calling a sales rep to get some wiggle room on MQCs. Carriers that guide them through this new environment, rather than squeeze them after more than decade of being on the receiving end of the negotiating stick, may convert short-term customers into long-term partners.
SeaNews Turkey
Faced with persistent cargo delays North American importers often have had to pay premium prices to just guarantee loadings and equipment availability.
Those premium rates can push the total cost to ship a container from Asia to the West and East coasts above US$6,000 and $7,000 per FEU, respectively, according to non-vessel-operating common carriers (NVOs).
In addition, there's detention and demurrage fees piling up, as clogged marine terminals in Southern California prevent the timely pickup and return of containers and chassis.
Now entering annual contract negotiations, shippers face pressures to curb the amount of so-called free time allocated along with resistance from carriers to expand minimum quantity commitments (MQCs) unless rates are significantly higher.
There's little doubt that contract rates will be significantly higher from the range of last year's rates of $1,300 to $1,400 per FEU to the West Coast and $2,300 to $2,400 per FEU to the East Coast. And dauntingly, there's little short-term relief on the horizon when it comes to better container availability, the biggest driver of sustained congestion and elevated ocean rates, reports IHS Media.
But most alarming for retailers is carriers' resistance - displayed over the last 10 months - to adjust volume allocations set by MQCs in service contracts, forcing shippers to pay extra for additional space either via the carriers or forwarders.
That key lever has insulated them to a degree from carriers rolling their cargo in favour of higher paying freight or having to shell out extra to guarantee additional space within weeks rather than months. But this year, carriers are reportedly telling retailers and forwarders that unless they are core customers with large cargo commitments, their MQCs likely will not be increased.
Logistics managers are under more pressure from the C-suite to contain transportation costs, and to a degree not seen since the West Coast port crisis of 2014-15, when some logistics managers lost their jobs due to stockouts.
In a sign of the leverage carriers enjoy in contract talks, some have been willing to start earlier contracts to expand their MQCs, choosing to sign 16-month contracts from January 1 through April 30, rather than wait for the traditional May 1 through April 30 period.
In the wake of contract finalisations, retailers' frustrations - with service levels, the scale of rate increases, and having to pay for some so-called premium services that simply provide a regular level of service - will linger.
Shippers may need to accept higher rates, tighten their free time allocations, and give up the days of calling a sales rep to get some wiggle room on MQCs. Carriers that guide them through this new environment, rather than squeeze them after more than decade of being on the receiving end of the negotiating stick, may convert short-term customers into long-term partners.
SeaNews Turkey