Analysts are now predicting that the peak shipping period from Asia to the US will be mild. This prediction is in stark contrast to last year’s peak when available space on ships was tough to secure. Many shippers were forced to pay hefty rate premiums to move cargo during their preferred shipping windows. Conventional wisdom would suggest that the prediction of a mild peak would have the reverse effect on rates. Five years ago, this would likely have been the case.
Shippers must come to terms with the drastic impact carrier consolidation has had on the container shipping industry. The knee jerk reaction of lowering rates to attract cargo when demand is weak seems to have disappeared from the carriers’ playbook. Instead of reducing rates, carriers have shown the ability to prop up demand by blanking (cancelling) sailings. The practice of blanking sailings worked so well last year that the carriers have begun adopting similar tactics heading into this year’s peak shipping period.
Shippers feel blanking sailings to create artificial demand in the market is an unjust practice being utilized by the carriers. Ocean contracts are signed based on carriers providing sufficient capacity to meet shipper demand requirements. Blank sailings may help carriers keep rates stable, but they are disruptive to supply chains across the US. Several carriers have indicated that extra ships will be added to meet sudden spikes in demand. Shippers balk at this solution. To secure space on these extra ships, shippers are forced to pay a premium. The freight rate premium can be as much as 50% over the spot market rate. The larger the spike in demand, the larger the freight premium.
The prediction for a mild peak season in terms of cargo shipped might be accurate but shippers should expect rates and space to mirror a strong peak shipping season. Shippers have very little recourse on how and when carriers manage capacity. The best strategy is to maintain an open-minded relationship with your carrier partners. Shippers that treat their carriers as adversaries will continue to face supply chain disruptions in this new shipping environment.
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.