The last few quarters were very bad for carriers financially. Q2 is expected to be even worse with industry analysts forecasting over $6 billion in total losses for 2016.
In an attempt to drive up prices and stem this long period of industry-wide decline, carriers have begun to reduce their total container carrying capacity.
In summary: carriers’ reduction of total container space + a rising demand for shipping services = higher container costs.
Below, you will find:
- The announced General Rate Increase (GRI) and Peak Season Surcharge (PSS)
- High level ocean freight market analysis
- Recommended steps
GENERAL RATE INCREASE & PEAK SEASON SURCHARGE
The following rate increases are scheduled to take effect in July for cargo moving from Asia into all U.S. Ports:
Announced for July 2016 and August 2016 (in $USD)
|General Rate Increase||Jul 1, 2016||$540||$600||$600||$760|
|Peak Season Surcharge||Jul 15, 2016||$320||$400||$450||$506|
|General Rate Increase||Aug 1, 2016||$900||$1000||$1125||$1265|
OCEAN FREIGHT MARKET ANALYSIS: JULY 2016
Our pricing team continuously monitors the status of proposed rate hikes to ensure that we are able to mitigate increases as quickly as the market conditions allows.
To better understand these rate increases, here are the key market factors at play:
- Stormy financial waters for carriers
- To stem the tidal wave of financial losses (forecasted to exceed $6 billion) carriers are trying to increase rates.
- The July increase appears to be the first rate increase to “stick” in the pricing game between the carriers
- For more context, read our game theory analysis of ocean carrier competition
- Carriers are actively reducing supply (to drive up demand):
- Cancellation of services – CMA-CGM the world’s third largest ocean freight carrier recently announced the cancellation of their “Taiwan Strait” service between South China and the US East Coast
- Merger of sailing schedules – CMA-CGM merged their “Yellow Star” and “Bohai” services between China, Southeast Asia and the US West Coast
- Blank sailings – carriers (including the G6 alliance) had a few “blank sailings” – basically cancelling a ship or port of call on a given route to further reduce capacity for Transpacific trade
- Ripple effects on alliances – UASC and CSCL (CMA’s alliance partners) as well as all other carriers buying slots on these vessels will also be affected by this change
What do these carrier updates and changes in the market ultimately mean for you?
Delays. When ships are full, containers are rolled to subsequent sailings, which are likely to also be overbooked.
Increased costs. Container slots go to highest bidder — it’s as simple as that — be prepared to pay more to keep your supply chain full (even if you have a contract!).
Inflexibility. When this space reduction is compounded with the normal volume increase of the “peak season” months of July-November, it will become extremely difficult to reserve last-minute space on ships.
- Plan ahead! – Make bookings as far ahead as possible and at a minimum of 2.5 weeks ahead of your desired sailing date. Carriers expect an accurate booking forecast at least 14 days prior to vessel departure.
- Communicate – Work closely with your vendors and ensure that they can meet the deadlines. When space is tight, carriers will put you at the end of the line, if you cancel bookings.
- Lean on Flexport – Your dedicated Flexport Team will keep you abreast of shipment status and update any changes at origin, empowering you to make real-time business decisions to manage your supply chain.
Following this protocol will go a long way to facilitate your shipments with minimal disruption and to the greatest extent possible, avoid delays at origin due to space issues.
If you have any questions, please feel free to contact email@example.com (Flexport’s Director of Pricing & Procurement) or your Logistics Manager & Account Executive.
Thank you for shipping with Flexport!