Failure of GRIs means a tough time for carriers in new-contract talks

Source: The Loadstar 
Date: 1st December 2023

Notwithstanding three attempts at GRIs (general rate increases) in 45 days, Asia-North Europe container spot rates have so far remained stubbornly low, which will make new contract negotiations onerous for carriers.

Despite huge FAK (freight all kinds) increases proposed by carriers for 1 November, 1 December and 15 December, Xeneta’s XSI Asia-North Europe component edged up just 1% this week, for an average of $1,244 per 40ft, and remains 50% below the level for the same week of last year.

However, the lines appear to be making better progress in restoring rate levels on the Asia-Mediterranean tradelane, in reaction to their GRIs for the same dates, with the Freightos Baltic Index (FBX) average increasing 7.5% on the week, to $1,605 per 40ft, although this is still around half the value of 12 months ago.

The failure to lift Asia-North Europe spot rates significantly as carriers are sitting down with shippers to negotiate new contract deals is a major obstacle for the shipping line key account representatives.

Carriers must close new contracts at a healthy margin above the spot market. Spot cargo is generally regarded only as a ‘top-up’ for the more lucrative carrier contract business.

Ocean Carrier’s third-quarter results confirmed the liner industry was quickly sliding into the red, with Q4 results likely to be substantially worse.

But those disappointing Q3 results would have plunged further towards negative territory if not for the effect of unexpired higher-rated contracts. Indeed, freight rate benchmarking firm Xeneta predicts that 2024 “could be even more brutal than expected for carriers”.

The Oslo-based company reported a further 4.7% fall in its XSI long-term contract index for October, which now stands at 62% lower than a year ago, and that decline will accelerate as new contracts are signed, according to Xeneta market analyst.

“We can be certain the new contracts will be signed at much lower rates than those signed at this time last year,” Xeneta market analyst said.

“We always knew there was a storm coming in Q1 24 when the older contracts expired, but it seems as though it has arrived earlier than expected.”

Meanwhile, on the transpacific, there was more encouraging news for Asia-US carriers after a big splurge by American consumers on Black Friday, which, according to online data firm Adobe Analytics, saw $9.8bn of online sales, up 7.5% from a year ago.

This will have some impact on reducing the bloated retailer inventories in the US that were halting new purchase orders, and thus reducing demand for sea freight carriage.

Drewry’s WCI Asia to US west coast component edged down slightly, by 1% this week, for an average spot rate of $1,971 per 40ft, with the rate just 3% lower than for the same week of last year.

With contract rate negotiations on the trade lane traditionally not starting until March for renewal in May, carriers have reason to be more optimistic about their forthcoming meetings with shippers.

Nevertheless, Asia-US east coast spot rates are still under pressure as shippers shy away from the route due to Panama Canal weight restrictions, the WCI spot reading is down 41% year on year, albeit flat in the past week, for an average of $2,563 per 40ft.

Elsewhere, on the oversupplied transatlantic trade lane, spot rates remained at sub-economic levels, with the XSI average flat at $1,266 per 40ft.

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