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Historically the biggest volume shippers (BCOs), like supermarkets and the large manufacturers, have contracted directly with the shipping lines, to provide the lines’ base loads, leaving the remaining vessel space subject to market demand. But not this year!
With so much supply chain turmoil, in the wake of the pandemic, it should probably come as no surprise that the traditional sea freight pricing model, is similarly topsy-turvy, with short term contracts and the spot market losing their attraction, or simply not being made available by shipping lines, making the pricing options offered by Metro so effective.
The global container shipping lines have succeeded in maintaining all-time high spot rates throughout most of 2020 and into 2021, which puts them in the strongest position to set the highest-price long-term contracts, which is not what the Beneficial cargo owners (BCO) want to sign up to, even though they desperately need the certainty of their cargoes being shipped.
So now the BCO is faced with a ‘Hobson’s choice’. Run the risk of playing the spot market and hope for lower rates, or lock into contracts and secure space for their supply chain, but at the highest price. And of course, if you’re a smaller shipper there’s a real danger of being sidelined for larger or more profitable customers.
Complicating matters further, as rates have increased, service levels have fallen to record lows, with global carrier on-time vessel performance less than 35%.
Despite the woeful reliability, carriers are determined to keep rates high, because for the first time in over a decade of over-capacity, they have the strongest negotiating position to recover the billions they’ve lost in recent years.
BCO negotiations in 2021 are likely to be the longest seen, because the lines will keep granting temporary extensions to the contracts, to allow more time for longer-term contracts to be negotiated, particularly as these temporary extensions will be more expensive than any long-term contracts and in addition peak season surcharges continue to be applied and probably increased over coming weeks and months.
How long shippers have to wait to get a slot on board a vessel depends very much on whether they have a contract or not. Playing the spot market can make it very difficult to get space, even when paying a premium and booking with shipping ‘guarantees’.
Metro work with all the major shipping lines and three alliances, negotiating space and volume agreements on all major trade routes, serving every primary gateway, which means our shippers have access to the widest selection of service, with competitive, secured rates and space.
The biggest and small shippers both had problems securing vessel space in 2020.
In 2021 the smart shipper will recognise the benefit of working with a trusted partner like Metro, to receive the best service in a challenging market, while eradicating risk from their supply chain by expanding the numbers of carriers and services they have access to.