At the beginning of every contract negotiation period, the shipping industry speculates whether the carriers or the shippers have the leverage to drive the contract negotiations. There is no speculation heading into the 2021 contract process. The carriers have 100% of the power barring a major collapse in the global economy. Shippers that fail to accept the new carrier tactics driving the Asia-US market should expect more of the same turmoil that has plagued the industry since June 2020.
Carrier consolidation has created a landscape that is vastly different than it was five years ago. Carriers are able to quickly adapt to downturns in the market by voiding sailings. The practice of voiding sailings to keep rates at profitable levels is the new normal. Capacity management is here to stay and has proven to be an effective tool for the carriers.
Shippers that understand working with the carriers to achieve a fair contract for both sides will fare much better on securing space during peak season. Shippers that focus solely on driving rates to the absolute lowest price are at risk of paying premium prices to secure space. Prior to capacity management, the risk to pay premium prices to secure space was relatively low. Under this new carrier environment, having the lowest rate almost always guarantees premium prices will be necessary to secure space during the busiest shipping months.
Bottom line, shippers should expect carriers to walk away from the negotiation table unless the contract rate is at an acceptable level. Unfortunately for shippers, even though carrier service reliability is at an all-time low, the carriers control the leverage heading into 2021 contract negotiations.
