IHSA will begin ocean contract negotiations in February. Industry analysts have differing opinions on which side, shippers or carriers, will have the upper hand during the 2018 negotiations. There are some analysts that believe excess capacity will again be a major deterrent preventing carriers from securing any sustained rate increases during 2018. On the contrary, other analysts are convinced that the consolidation in the containership industry will finally start to pay dividends for the carriers. They firmly believe that fewer carrier choices will provide the carriers with the necessary leverage to secure and sustain meaningful rate increases.
You can make a solid case for both opinions. The carriers have clearly become better at increasing rates during peak shipping periods. However, they continue to struggle with sustaining the increases once rates are implemented in the market. The carriers are the first to admit that they are their own worst enemy when it comes to sustaining rate increases for longer period of times.
Everyone associated with container shipping recognizes that the carriers’ rate methods need to change to achieve long term rate stability. If not for Hanjin going bankrupt, the containership industry would have experienced an epic meltdown in 2016. Stability starts with the carriers. Shippers have the power to ask for rate levels, but carriers have the ultimate power to accept these rate levels or walk away. One would think the rational decision would be to walk away from rates that are not profitable. That has not been the case since 2010. Increasing market share has always trumped rational decision making.
After decades of destructive behavior, some carriers are hopeful that the recent wave of consolidation will pave the way for real change. There are eight less carriers on January 1, 2018 than there were on January 1, 2016. Shippers have no choice but to adapt in this new carrier environment. The bigger question is whether the carriers will learn how to adapt and create value and stability for their shippers. Unfortunately, their track record says no.
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.