A lot of shipping and contracting patterns are swiftly changing in response to the COVID-19 pandemic. With factors such as extreme capacity limitations, reopening economies, and fluctuations in freight volumes, ocean rates have become volatile, leaving seasonality for the year a big unknown. Freight forwarders and their shipper customers need to pay close attention to this dynamic situation if they want to understand how to react appropriately.
Ocean Rates on the Rise
As consumer demand plummeted due to the financial repercussions of the COVID-19 pandemic and the ongoing U.S.-China trade war, many ocean carriers attempted to manage capacity by canceling an unprecedented number of sailings. According to an article recently published by JOC, U.S. imports to Asia from January through April have decreased by 7.9 percent year over year.
Exports have similarly declined by 5.5 percent from the same time frame last year; however, some industry insiders are considering these fluctuations in volume as typical responses to periods of transition. Others are placing the majority of the blame on the blanked sailings and predict a rise in volumes as carriers start to announce increased container availability.
The initial number of blanked sailings from Asia to the West Coast was at 21 percent, but now, it currently rests at 9 percent, according to new data revealed by Sea-Intelligence. Although capacity seems to be increasing, tight market conditions have led U.S. importers from Asia to seek out NVOs.
Another JOC article reported a 3 percent boost for NVOs’ share of bookings in eastbound trans-Pacific trade from January of this year through May. Despite a 14.1 percent drop in direct bookings for carriers, NVO bookings managed to only fall 4.1 percent in comparison. So, while volumes still remain volatile as a result of uncertain demand and a large amount of canceled capacity, importers are being forced to turn to NVOs instead of their usual carriers to locate available containers.
Contract vs. Spot
Many BCOs decided against signing fixed-rate contracts earlier this year in an attempt to take advantage of what seemed to be an ideal spot market for them, but decreased capacity ended up having the opposite effect. Because demand for cargo actually ended up surpassing vessel supply, especially for trans-Pacific trade, ocean rates have dramatically increased by 84 percent year over year based on data published by FreightWaves.
Now, with increasing spot rates, contract rates offered by NVOs are looking a lot more promising to BCOs than the inflated alternative. This trend, like most, won’t last forever though. Depending on how consumer demand plays out for what is supposed to be peak season and carriers manage capacity moving forward, carriers could stand to profit big or enter a trade war that puts them deep in the red.
Moving forward, shippers should concentrate their efforts on identifying the needs of their own business and focusing heavily on efficient freight contract management. It’ll be beneficial for companies to leverage technology to help produce actionable metrics and future-thinking strategies.
Freight forwarders should consider how digital-first logistics tech companies like Blinkfreight can improve visibility, provide critical data analysis, and offer new levels of automation that will give your shipper customers the ability to navigate today’s volatile ocean freight marketplace.