Ocean Freight Rates for Major Shippers, Long-term Rates as High as Spot Rates! Shippers’ Priority is Securing Space.

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Today I would like to talk about, “Container Freight Rate Negotiations for Major Japanese Shippers, Annual Contracts at Spot Rate Levels”.

Daily Logistics Radio by IINO san in 14th Mar. 2022

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Negotiations on Freight Rates for 2022

Container shipping companies and BCO, major Japanese shippers, are in the final stages of negotiations for 2022 freight rates.

Since space is tight, all major shippers are placing top priority on securing space across the board.

According to a shipping company official, “This negotiation has become the first freight rate negotiation where freight rates themselves are not an issue.”

Long-Term Rate Surge

Contracted fares that have been signed appear to be a series of record highs, comparable to 2021 spot rates.

Normally, long-term contracts are priced lower than spot rates. The key point is that rates for long-term contracts in 2022 are now as high as last year’s spot one.

Focus of Negotiations in 2022

All major shipping companies’ supply space this year is on par with the previous year, but shippers expect an increase in shipping plans. Demand is overwhelmingly higher, and negotiations have reportedly been extremely seller-dominated.

Priority on Securing Space over Freight Rates

The focus of the negotiations this time was to secure supply space. The shipper’s sales representative said, “All the shippers asked us about was space, and freight rates were never discussed.”

Many shippers simply accepted the price offered by the shipping company at the primary stage.

In addition, there were cases where multi-year contracts, such as two-year, were concluded in order to secure stable transportation space.

Multi-year contracts are risky for shippers, but attractive for shipping companies because of the prospect of stable profits.

If freight rates plummet in 2023, shippers with multi-year contracts will lose money. Shipping companies have actively accepted multi-year contracts with the assurance of providing space.

Long-term Rates

Long-term rates from Japan and Asia to the West Coast of North America negotiated for 2021 was around USD3,000-4,000/40′.

However, as of January of this year, one indicator was said to be around USD10,000 per 40′ container. Actually, it appears that many of the already-determined amounts for BCO exceeded this indicator, more than doubled from last year.

Higher Prices from Japan than from Asia

And at the end of the article, it is reported that spot rates to North America from Japan have surpassed those from China.

There is a trend toward higher prices from Japan compared to those from Asia.

Traditionally, it has been said that prices from Japan are generally less expensive than those from Asia, but this has been reversed since the end of last year.

Currently, direct flights from Japan are being cancelled one after another, and there is a trend to avoid port calls to Japan because they are not profitable.

Due to the worsening conditions for departures from Japan, it seems that space cannot be secured without higher prices than those from Asia.

Spot Rates

What is of interest in this article is this year’s spot rates.

Since this year’s long-term rates are about the same as last year’s spot fares, in this case, spot fares generally will be even higher.

U.S. Government’s Response to Shipping Companies

However, President Biden is hitting shipping companies. North America is quite inflated, and in General State of the Union address of March 1, President Biden criticized as follows.

“I want you to look at the situation of the shipping companies that carry goods into and out of the U.S.,” he said. “During the Corona, foreign-owned shipping companies raised prices by as much as 1,000%, making record profits.”

When President Biden then stated, “I am announcing a crackdown on companies that are overcharging U.S. businesses and consumers,” the floor seemed to erupt in applause.

In response, WSC, World Shipping Council, said a statement the next day, March 2.

“The containership industry is in a competitive enough environment. And it is very unfortunate that baseless criticisms were made against an industry that is responding to unprecedented shipping demand.”

Domestic and International Freight Rate Trends

I spoke at the beginning of this video about Japanese shippers, but the situation seems to be the same for overseas shippers.

Long-term rates for BCO will be higher than last year, although we tend to focus on the gap because long-term rates for BCO in Japan were too low.

In order not to raise spot freight rates any further, there may be some kind of regulation in the U.S. power play.

I don’t know what will happen, but Japanese shipping companies can sell for more than double the price of a long-term contract.

Thus, it is certain that their earnings in 2022 will be higher than last year.

As a frontline position, I will keep a close eye on future freight rate trends.

That’s all for today. Thank you.