Capacity Improvement and Longer Contracts Signal More Hikes

The Ningbo Containerized Freight Index (NCFI) commentary said that space on some voyages was tight last week, but the shipping lines serving the tradelane seem to manage their capacity more efficiently. Meanwhile, spot market freight rates are reported to be rising as the European and American routes enter longer-term contracts. With both factors considered, the trend of low freight rates may be gradually reversed.


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Successful Carrier Capacity Management

A carrier contact told The Loadstar that headhaul load factors had “improved considerably” in the past few weeks and that their sailings were “fully utilized” last week. "We are having to roll some containers, particularly if they are heavy", added the contact.

On the other hand, container spot rates have increased to varying degrees on different routes. From Asia to North Europe, container spot rates increased last week, though some carriers are holding off quoting for May shipment because of anticipated GRIs (general rate increases) ahead.

Meanwhile, on the transpacific, the FBX Asia-US west coast component remained at its low of just over $1,000 per 40ft, seemingly to push spot rates back up on the rise as volumes pick up and carrier supply management tightens.

Due to the relatively strong demand and higher prices, ocean carriers have added additional capacity away from the major routes, which may eventually lead to further downward pressure on freight rates.

At the same time, some carriers are using their huge cash reserves to fortify their networks and gain a commercial advantage over more conservative lines, according to The Loadstar report on April 17.


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Longer Terms of Air Cargo Contracts

According to an email update from Xeneta’s Clive Data Services in April, shippers and forwarders have been ensuring the longer-term contracts. In Q1, shippers’ 6-month agreement increased to 36%, up from 23% in Q4 2022. Xeneta’s Chief Airfreight Officer Niall van de Wouw said that this could be a signal for forwarders to lock in customers for an extended period as the market stabilizes.

“The fact that we see longer-term contracts between shippers and freight forwarders is a signal that the market is stabilizing,” van de Wouw continued. “Shippers have regained some ground because of the lower rate conditions, which have affected the airlines and forwarders.”

As van de Wouw said, longer-term contracts will be advantageous for shippers’ logistics purchasing divisions who have been forced away from traditional annual deals over the past few years. Shippers and forwarders have an increased desire to collaborate in the long run. What airlines do with their summer schedules and the additional capacity boost this traditionally brings is the subsequent exciting market development. 


Image by jacqueline macou from Pixabay

What Business Opportunities to Grasp

With the further reversal of the downtrend, freight rates may climb gradually in the near future. Global buyers and product suppliers can make more reasonable shipping arrangements based on market price. If needed, global buyers or suppliers may as well sign a longer-term contract with freight forwarders beforehand to get more favorable prices.

Source: 1. The Loadstar 2. Supply Chain Dive

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