Service contracts covering containers moving between Asia and the United States have been finalized. It was initially thought that the new service contract rates would remain unchanged or receive slight decreases in some cases. The steady increase in container volume from Asia during the first quarter of 2024 has allowed the carriers to secure modest price increases for the 2024-25 contract period.
The amount of increase varies depending on the origin and destination of the cargo. The old contract rate levels also factored into the amount of increase. The carriers argued throughout the negotiations that the 2023-24 contract rate levels were not sustainable for another year. Carriers indicated that service disruptions would continue unless increases in revenue were attained.
Spot rates spiked earlier this year due to the disruption in the Red Sea. Spot rates have been on a steady decline since their peak in February. Once shippers adjusted their supply chains for cargo that normally moves through the Red Sea, the spike in the spot rate finally stabilized. Even with the rate increases, service contract rates will start out substantially lower than current spot rate levels. The May 1, 2024 rate disparity for cargo moving from China to USEC gateways could be as large as $1000 per container. It is possible spot rates could continue their slow decline post May 1 closing the rate gap with contract rates.
Since 2020, there has been a general consensus that the Asia to U.S. freight market either favored the carrier or shipper. Most experts initially predicted that shippers would have the upper hand in 2024 due to soft demand coupled with excess container capacity. Import volume to the U.S. exceeded projections during the first quarter. Import volume to the U.S. for the second quarter is also expected to exceed the original projections. If the stronger demand continues to hold steady, the Asia to U.S. market might be in balance for the first time since the pandemic.
IHSA recently concluded ocean contract negotiations by signing service contracts with the top carriers in the Asia to U.S. trade. The contracts will ensure that 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 favor of the carriers.
