The majority of ocean contracts covering containers moving between Asia and the United States have been finalized. The contracts being signed contain rates that are substantially lower than the rates that were finalized in April 2022. The previous two contract cycles saw spot rates skyrocket to record high levels before finally subsiding in the fall of 2022. The new contract rates, which traditionally take effect on May 1, will provide contract shippers with substantial savings and stable pricing.
The carriers have been telling anyone that will listen that the spot rates offered during Q1 2023 were not sustainable. Still, many shippers were hesitant to sign new contracts until more clarity was provided regarding the spot rate moving forward. Carriers united together and were able to increase the spot rate on April 15. This successful action by the carriers prompted many shippers to move forward and finalize their 2023-24 ocean contracts.
Carriers have explicitly stated that the April 15 spot rate increase will be the first of many increases throughout the year. After the success of the April increase, carriers quickly announced additional increases for May. Industry experts are skeptical that another rate increase so soon will stick in the market. If current demand projections remain unchanged, carriers will be challenged to implement further spot rate increases until July or August. Even then, it will be difficult unless there is a surge in demand or carriers remove capacity.
Make no mistake, the current Asia to U.S. market favors the SHIPPER. Market conditions continue to put downward pressure on rates. Future attempts by the carriers to increase rates will be a challenge. Present capacity exceeds demand projections so paying a premium to secure space is unlikely. Congestion at key U.S. gateways is also easing allowing containers to flow freely through U.S. ports. These are all positive developments for shippers.
If the last three years taught us anything, it is how quickly the market can change in the other direction. IHSA concluded negotiations by signing eight contracts with the top carriers in the Asia to U.S. trade. IHSA members have access to competitive fixed rates, allocated space and reliable services. Most importantly, IHSA members are protected from massive rate hikes and space limitations should the market quickly turn in the carriers’ favor.