Shipping contract rates remain higher than spot prices, upending seasonal rate negotiations

The average price paid for global shipping dropped 14 percent in Q1 2023, with North America experiencing the largest decrease, according to Container xChange.

Christian Roeloffs, the CEO of the online platform for container logistics and data, said it was the largest quarterly price-drop his company has ever recorded. Contract rates remain higher than spot shipping rates, resulting in many shippers "holding back to place themselves better" during the traditional contract-negotiation season in May. Roeloffs said the situation is such there will likely be a trend of shortening contract tenures from annual agreements to smaller timeframes.

“The global container logistic ecosystem is like a spider’s web. One disruption does not linearly impact the knot. Instead, every disruption reverberates across the web – sometimes in unexpected directions," Roeloffs said. "The increase in [U.S. Federal Reserve interest] rates, the banking sector crisis, the strikes might seem concentrated in one region, but they have their impact across all trade lanes."

China’s exports dropped 5 percent year-on-year in January and February 2023, according to Roeloffs. Alix Partners 2023 Container Shipping Outlook, published in March 2023, found Southeast Asia is seeing a boost in its international trading as companies that previous were heavily dependent on Chinese manufacturing push for diversification in their sourcing.

“Bangladesh, Malaysia, and Vietnam are already eating into China’s share of consumer goods exports and [we] foresee China's position eroding further as nearby countries increase their shares of supply chains and as government policies and business strategies [encourage] outbound momentum," it said. "Mexico and Eastern Europe stand to gain over the medium-term as more and more volumes shift out of China and to neighboring countries."

Roeloffs said the current plunge in shipping rates is the result of postponement of inventory replenishment cycles by retailers who previously overstocked.

"As we look ahead, we anticipate a subdued rebound in demand as retailers begin to deplete their excess stock in the coming months, leading up to the peak season," he said.

Besides diminishing stockpiles, Roeloffs said global diversification of manufacturing will result in a rebound in container prices to later this year. 

“The diversification of trade will prove to be beneficial for ocean trade because this will cause a boom to the regional trade within Asia. It will also lead to more locations adding to the direct trade from the region to North America or to Europe. So, diversification will play a role and in general, this will soak up more capacity than what we would have had on transpacific China to the U.S.A. or China to Europe alone,” Roeloffs said.

Photo courtesy of MOLPIX/Shutterstock