After collectively losing $5 billion in 2016, the carriers are collectively poised to return to profitability for 2017. The anxiety that shippers experienced in 2016 regarding bankruptcies and acquisitions is no longer dominating the headlines.
While stability is welcome news for the industry, there are concerns about whether the carriers will be able to sustain stability. Space on containership vessels moving from Asia to Southern California ports has been at a premium since July 2017. Simple economics would dictate that spot rates would be on the upswing when space is at a premium. That has not been the case. Spot rates have been experiencing large swings in both directions.
Most industry experts agree that the carriers still have not figured out a way to capitalize when demand conditions are strong. The demand for cargo moving through North American ports is very strong with the major gateways experiencing double digit growth rates. It doesn’t matter how strong demand is if the carriers continue to make decisions that allow supply to outpace demand.
There are already indications that excess capacity will prevent carriers from securing any significant rate increases in next year’s contracts that go into effect May 1, 2018. Carriers are quick to lecture the industry that things must change on how rates are negotiated if shippers want true stability. When shippers see spot rates going down in a market where demand is strong, it’s hard to take the carriers seriously about achieving rate stability.
Spot rates are expected to spike in late January 2018 and early February 2018 leading up to Chinese New Year. Shippers will be paying close attention to the spot rates in March 2018 and April 2018. It would not bode well for the carriers if they let the bottom drop out of the spot rates leading into negotiations. Shippers need rate stability. Carriers lecture on rate stability. We will soon find out if the carriers learned anything from the financial disaster of 2016.
The International Housewares Shippers Association (IHSA) is a not-for-profit association formed to benefit companies belonging to the International Housewares Association (IHA). Through the combined leverage of members, IHSA negotiates freight contracts and partners with other logistics providers to lower supply chain costs.
IHSA’s main function is to negotiate the lowest possible transportation rates and provide the highest quality service for all participating members. Additionally, IHSA members receive valuable market intelligence and advice through regular newsletters and briefings.
IHA member companies looking to reduce their ocean freight costs or have questions about an ocean freight issue are encouraged to contact IHSA to learn about the program. Contact IHSA at +1-513-489-4743 and learn more on our website.