The amount of vessel space in the eastbound trans-Pacific shipping lanes has significantly decreased in recent months, which has left many retailers and non-vessel-operating common carriers (NVOs), also known as freight forwarders, in a precarious situation. Because carriers are not adhering to the agreed-upon space allotments, this drop in capacity is harming those who reserved space through 2024–25 service contracts. Shippers are therefore struggling to manage their logistics in a market that is becoming more and more competitive.
The Market’s Present Situation
There are numerous reasons for the current mismatch between supply and demand. NVOs and mid-size to smaller shippers are allegedly irritated by carriers’ reduction in fixed-rate allotments as stipulated in service contracts. “We’re getting less and less,” says Christian Sur, executive vice president of Unique Logistics International, expressing a general sense of discontent. The continued diversion around southern Africa to avert extremist attacks in the Red Sea and Gulf of Aden, coupled with congestion at major Asian ports, exacerbates the rush to acquire vessel space.
Additionally, importers have reserved space earlier than usual because to the possibility of labor disruptions along the East and Gulf coastlines and their effects on the West Coast supply chain. Because of this, carriers are now able to impose peak season surcharges (PSSs) and general rate increases (GRIs) more frequently—sometimes twice a month instead of just once. This is because the available capacity is rapidly decreasing.
The Effect on NVOs and Shippers
Carriers are trying to optimize their income by giving high-paying spot cargo priority over fixed-rate allocations as vessel capacity is becoming more limited. Spot costs have surged to all-time highs as a result of this change; in only two months, West Coast prices increased from $2,820 to $7,300 per forty-foot equivalent unit (FEU), while East Coast rates increased correspondingly. Significant capacity reductions for NVOs and even beneficial cargo owners (BCOs) with minimum quantity commitments in their contracts have resulted from such sharp increases.
“Pay a PSS or there’s no space,” as Bob Fredman of SF Global Insights puts it, suggests that carriers are taking advantage of their position to get better rates. Shippers must therefore overcome the difficulty of bearing these extra expenses while preserving their supply chains.
Planning Strategically and Adapting
In light of the ongoing market tightness, which is not expected to abate before the end of 2024, shippers need to use more strategic planning techniques. Integrated business planning (IBP) and accurate demand forecasts are essential. These procedures, which project 12 to 24 months into the future, assist in coordinating industrial capacity, financing, and material supply with anticipated demand. Sales and operations planning (S&OP) is a short-term strategy that accounts for short-term fluctuations in supply and demand by focusing on a 90-day horizon.
Inaccuracies in forecasting frequently leave logisticians “stumbling in the dark,” since they find it difficult to foresee volume requirements with any degree of accuracy despite these planning attempts. Coordination and communication with carriers are made more difficult by this uncertainty as well as the dispersed logistics and procurement systems seen inside many BCOs.
Useful Guidance for Shippers
Shippers should follow their projected volumes in order to manage the current market and refrain from overbooking, which will only make capacity problems worse. Increasing flexibility and dependability might result from shipping as scheduled and fostering confidence with carriers. Additionally, the danger of capacity shortages can be reduced by diversifying carriers, even at an increased expense.
Communication is still essential. Shippers should be in constant communication with their carriers, particularly if anticipated quantities surpass agreed-upon sums. Small deviations can usually be tolerated as long as they are disclosed beforehand. Shippers can more effectively obtain the space they require and fulfill their client commitments by being dependable and proactive in their logistics strategy.
Looking Forward
The present obstacles facing the container transport industry highlight how crucial flexibility and strategic planning are. Shippers who make a significant investment in thorough demand planning, keep open lines of communication with carriers, and adjust to shifting circumstances will be in a better position to negotiate the market’s tumultuous seas even in the short term. Those who can strike a balance between short-term flexibility and long-term planning will have an easier time getting the vessel capacity they need and efficiently controlling costs as the sector continues to change.
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