Mid-size importers in the trans-Pacific trade lane are bracing for higher rates in their 2024-25 service contracts as carriers struggle with rising costs and a volatile security situation in the Red Sea. However, disagreements over supply and demand fundamentals are causing delays in negotiations.
According to industry experts, this is the year for mid-size shippers to wait as long as possible before entering into contract negotiations with carriers. The largest national retailers, who typically set the pricing floor for the trans-Pacific trade, are currently in negotiations with carriers. Non-vessel-operating common carriers (NVOs) believe that these retailers are trying to keep rates flat compared to last year.
Carriers argue that they need to increase rates to cover rising costs, particularly on all-water services from Asia to the East and Gulf coasts due to the ongoing crisis in the Red Sea. However, NVOs claim that carriers are struggling to sell this argument to their largest customers. They believe that carriers are trying to secure fixed rates from their biggest customers and then push for higher rates from mid-size shippers who import 20,000 to 50,000 TEUs.
Most mid-size importers and NVOs are waiting until after the annual Trans-Pacific Maritime Conference (TPM) in Long Beach to start serious negotiations with carriers. The conference, which will take place from March 3-6, will provide valuable insights from economists, industry analysts, and carrier and shipper executives on the current supply and demand situation in the trans-Pacific trade lane.
“Service contract negotiations right now are a waiting game,” says an industry analyst and former logistics manager. These negotiations typically begin on May 1, but many are delayed this year due to the uncertainty in the market.
Carriers have successfully implemented general rate increases (GRIs) ahead of the Lunar New Year holiday, which will cause many factories in Asia to close for a couple of weeks. Spot rates as of February 8 have increased to $4,550 per FEU to the West Coast and $6,100 per FEU to the East Coast, up from $1,556 and $2,320 per FEU respectively in December.
