Trans-Pac carriers showing flexibility in service contract negotiations
As trans-Pacific carriers wrap up their 2023-24 service contract negotiations with non-vessel-operating common carriers (NVOs) and shippers, they are signing a broad mix of deals that include fixed and floating rates, as well as contracts that include the price of the inland rail or truck move, sources say. Most contracts should be signed by June 1.
Sources told the Journal of Commerce that negotiations are mostly concluded on NVO contracts with rates that float with the spot market, known as freight-all-kinds, or FAK. The initial FAK rates this year are generally in the range of $1,350 to $1,500 per FEU to the West Coast, the sources said, with East Coast rates about $1,000 higher.
The Journal of Commerce spoke with three carrier executives and seven NVOs for this story.
Rates in the 2023-24 contracts are significantly lower than last year’s contracts; rates a year ago were $6,000 to $8,000 per FEU to the West Coast and $8,000 to $10,000 for the East Coast.
NVOs are now finalizing the rates that are fixed for the life of the contract, known as “named account rates” because the NVO must name the shipper. Named account rates are generally priced lower than the FAK rates.
“Fixed account rates will be a little less [than the FAK rates], maybe $50 [per FEU] less,” said one NVO who spoke on the condition of anonymity.
NVOs anticipate completing the named account contracts by the end of May. “We’re still looking for that final number,” said Christian Sur, executive vice president of ocean freight and contract logistics at Unique Logistics International.
Carriers more open to IPI and door business
NVOs said carriers entered this year’s service contract negotiations with a more flexible mindset than last year when import volumes were at record or near-record levels and carriers could focus on the highest-paying freight.
“We’re back to pre-COVID [volumes] with softer markets for many types of business. Carriers are no longer picking and choosing what business they want,” said a carrier executive who spoke on the condition of anonymity. “Everybody needs a bit more freight, so they’re doing things they didn’t do before.”
US imports from Asia in April totaled 1.35 million TEUs, down 18.6% year over year, but up 25 percent from March, according to PIERS, a Journal of Commerce sister product within S&P Global.
NVOs are keen to lock in their named account rates before the beginning of peak season in August because waiting brings the possibility that spot rates could increase, said Kurt McElroy, executive vice president of NVO APEX Maritime Co. “Anything can happen,” he said. “We want to limit our exposure to the spot market.”
Carriers, meanwhile, want to attract more freight, even if it means giving NVOs more named account commitments, Sur said, adding that carriers have indicated they will levy peak season surcharges this summer and fall.
Carriers more flexible on inland transportation options
Carriers are also willing to book more containers that are loaded directly onto trains at West Coast ports and move intact by rail to inland hubs such as Chicago, Dallas, Memphis and Kansas City. And they are pricing inland point intermodal moves (IPI) lower than last year.
“Some carriers are offering very competitive IPI rates,” said Rachel Shames, vice president, pricing and procurement, at NVO CV International.
IPI rates for shipments that move from Asia through Los Angeles-Long Beach to Chicago are priced today at about $3,500 per FEU, or one-third of last year’s IPI rates, carrier executives and NVOs told the Journal of Commerce.
Last year, when ocean eastbound spot rates were about 10 times higher than export rates, carrier pricing encouraged port-to-port container moves and discouraged IPI bookings. Carriers preferred that the containers be transloaded near the ports into 53-foot domestic containers so the empty marine containers could be repositioned quickly to Asia and then reloaded with high-paying imports.
Another carrier executive said liners this year want a healthy mix of IPI and port-to-port business. IPI shipments allow carriers to position containers into urban areas such as Chicago, Kansas City and Dallas, which are close to where agricultural products are sourced. That helps carriers generate two-way moves with merchandise imports from Asia and the returning commodity exports, the source explained.
David Bennett, chief commercial officer at the NVO Farrow, added that because the transportation networks are relatively fluid now, IPI rates have “normalized” and are back to 2019 levels.
Another reason why carriers last year discouraged IPI bookings was that congested rail hubs in the interior idled rail containers for weeks, sometimes months.
“The rail system was broken. It was a black hole,” a third carrier executive said. This year, rail networks are more fluid, he added.
‘Door moves’ back in vogue
Similarly, carriers this year are more amenable to booking containers from Asia to West Coast ports and including the drayage move to warehouses in a single all-in price. These so-called “door moves” are not only popular with retailers, but they also fit into the business plan of those carriers that are building end-to-end bundled services, the third carrier executive said.
“We’re working hard to get our customers to use us as a one-stop, door to door provider,” he said.
Source: Journal of Commerce
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