LONG BEACH, Calif., February 27 (Portal) – Collapsing ocean shipping rates appear to be good news for US retailers, but they are now bracing for delays as some airlines seek to prop up prices by canceling trips.
Retailers had paid up to $20,000 to ship a container of goods during the worst of the pandemic disruption.
Airlines like MSC and Maersk (MAERSKb.CO) are trying to hike prices by canceling trips, which could trigger a new round of cargo delays as containers are jostled from one ship to the next, experts said ahead of a major US maritime conference in Long Beach, California this week.
Dubbed TPM23, the event marks the unofficial kick-off of the container shipping contract negotiation season, where shippers and their US customers, from Walmart Inc (WMT.N) to wholesalers and exporters of all stripes, negotiate annual price and volume agreements.
The closely watched and often contentious negotiations are significant as the Asia-US trade route is the most lucrative for airlines and these deals set the tone for talks in other regions.
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However, any shipper savings from these deals could lead to a new headache — late deliveries.
The Port of Los Angeles reported 17 canceled voyages in January and warned of more.
“If (transporters) keep bumping containers, we could end up missing Christmas,” said Isaac Larian, chief executive of Southern California toymaker MGA Entertainment.
The team at MGA has already switched around 75% of shipments of products like Rainbow High and LOL Surprise! dolls to the short-term spot market from the long-term contract market. The company pays around $1,150 per container — a cost savings of more than $18,000 from the peak, Larian said.
Volatile spot rates were the first to collapse as pandemic-weary consumers shifted spending from commodities to travel and entertainment. Now the gap between spot and contract rates is closing, amid pressure from the looming recession and competition to fill ships, said Peter Sand, chief analyst at air and ocean rates benchmarking platform Xeneta.
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REVENGE OF THE TRANSPORTERS
As demand boomed, airlines made record profits by focusing on the most lucrative cargo. Critical customers struggled for space, and companies like Walmart, Costco Wholesale Corp (COST.O), and Dollar Tree Inc (DLTR.O) chartered ships to keep shelves stocked.
But the tide has turned and shippers want a refund on ocean freight costs, which in some cases have quadrupled.
It’s “shippers’ revenge,” said Jon Monroe, an industry consultant and North American representative for Singapore-based Transfar Shipping, which owns Chinese e-commerce giant Alibaba (9988.HK).
“There was a time when everyone was looking for a win-win situation. COVID got that out of the way immediately,” he said.
Experts say formerly loyal customers are aggressively comparison shopping, diversifying their business and playing in the spot market.
The non-binding nature of maritime contracts drives customers or shippers to push for whatever they can get when leverage comes their way, said Lawrence Burns, a consultant who used to negotiate for Hyundai Merchant Marine.
This time the shipping managers of importers and exporters, whose costs skyrocketed when they were unexpectedly forced into the sky-high spot market, have the upper hand.
“You’ve been called into the CEO’s office too many times in the last two years. They’re coming back for blood,” Burns said.
Asked whether major customers are contracting at near spot rates, MSC Vice President Allen Clifford said, “I suppose some are.” Soren Toft, chief executive of the world’s largest airline, declined to address the stage at TPM23 on Monday to express.
Customers and shippers don’t often discuss contract talks, but in recent earnings talks officials from Walmart — the No. 1 U.S. container shipper — furniture retailer La-Z-Boy (LZB.N), toymaker Mattel Inc (MAT.O) and Der Musical instrument seller Yamaha said it expects to benefit from lower interest rates.
Reporting by Lisa Baertlein in Long Beach, California. Edited by Ben Klayman and Matthew Lewis
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