The recent Red Sea crisis and ongoing market instability have left shippers questioning the value of contracts as carriers prepare for upcoming negotiations.
With limited capacity and geopolitical uncertainties dominating the market, carriers are poised to hold a significant advantage in upcoming contract negotiations, according to industry experts. Alexander Tennant, head of ocean development at NNR Global Logistics, told *The Loadstar
that he anticipates higher rates compared to last year, as carriers report their contracted space being fully allocated for the remainder of 2024.
Tennant also highlighted the earlier Chinese New Year in 2025, starting on 29 January, which is expected to push the peak season run-up to December. This will likely exacerbate pressure on capacity and potentially drive rates further upwards.
While the spot market has softened following the peak season, forwarders anticipate a rebound in rates as we approach China's "Golden Week" holiday. Xeneta, an analytics platform, warns supply chain operators to be mindful of external factors like extreme weather, labour disputes, and rising protectionism during contract negotiations.
James Hookham, director of the Global Shippers Forum, highlights three key unknowns that will shape the upcoming contract negotiations. The first, fuelled by the Red Sea crisis, is the question of whether contracts are truly meaningful. With carriers increasingly utilising dynamic pricing and carrier booking platforms, shippers are often presented with "personalised" spot rates, even when volumes have been previously contracted.
Hookham asserts that only the largest shippers enjoy genuine negotiated rates, and even these are subject to carriers abandoning them when capacity pressure and spot rates surge. "A contract is rapidly turning into mere 'terms and conditions for carriage' issued by the shipping line," he says.
The second unknown is whether committing to contracts upfront offers a true advantage, considering carriers' access to extensive shipper data. This raises concerns about the negotiation's fairness and whether shippers are receiving the best possible deals.
Both Hookham and another forwarder interviewed by *The Loadstar
suggest that the delivery of new vessels over the next 18 months should alleviate pressure on capacity. However, the third unknown is the extent to which this new capacity will actually become available for booking and when it will enter the market.
While carriers have been strategic in deploying vessels to manage capacity levels, Hookham believes that this strategy cannot be sustained indefinitely and expects a shift in the supply side situation. The uncertainty surrounding the release of new capacity poses a significant challenge for shippers, highlighting the complexity and unpredictability of the current market environment.