LONG BEACH, California, Feb 27 (Reuters) – Collapsing shipping rates appear to be good news for U.S. retailers, but they are now bracing for delays as some carriers try to prop up prices by canceling trips .
Retailers had paid up to $20,000 to move a container of goods during the worst pandemic disruptions.
Carriers like MSC and Maersk (MAERSKb.CO) are trying to raise prices by canceling trips, which could trigger another round of freight delays as containers move from ship to ship, officials said. experts ahead of a major US shipping conference in Long Beach, Calif., this week.
The event, called TPM23, marks the unofficial kickoff of container shipping contract trading season when carriers and their U.S. customers ranging from Walmart Inc (WMT.N) to merchants and exporters of all persuasions strike deals. annual price and volume agreements.
These closely watched and often contentious negotiations are important because the Asia-US trade route is the most lucrative for carriers, and these deals set the tone for talks in other regions.
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However, any shipper savings gleaned from these deals could come with a new headache – late deliveries.
The Port of Los Angeles reported 17 canceled trips in January and warned of more to come.
“If (the carriers) keep banging the containers, we could end up missing Christmas,” said Isaac Larian, chief executive of Southern California toymaker MGA Entertainment.
The MGA team has already redeemed approximately 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 is paying about $1,150 per container, a savings of more than $18,000 from peak, Larian said.
Volatile spot rates were the first to fall as pandemic-weary consumers shifted spending from goods to travel and entertainment. Now the gap between spot and contract rates is narrowing, under pressure from the threat of recession and competition to fill ships, said Peter Sand, chief analyst at the benchmarking platform for air and sea freight rates Xeneta.
THE REVENGE OF THE SHIPPERS
When demand was booming, carriers reaped record profits by focusing on the most lucrative cargoes. Critical customers had to scramble for space and the likes of Walmart, Costco Wholesale Corp
But things have changed and shippers want to recoup ocean freight costs which have quadrupled in some cases.
It’s “shippers’ revenge,” said Jon Monroe, an industry consultant and North American representative for Singapore-based Transfar Shipping, whose investors include Chinese e-commerce giant Alibaba (9988.HK).
“There was a time when everyone was looking for a win-win. COVID threw that off the beaten track,” he said.
According to experts, previously loyal customers are making aggressive comparisons, expanding their businesses and playing in the spot market.
The non-binding nature of marine contracts causes customers or carriers to push for whatever they can get when leverage changes, said Lawrence Burns, a consultant who previously handled negotiations for Hyundai Merchant Marine.
This time around, the shipping managers of importers and exporters, whose costs skyrocketed when they were unexpectedly forced into the super high spot market, have the upper hand.
“They’ve been summoned to the CEO’s office too many times over the past two years. They’ve been coming back for blood,” Burns said.
When asked if large customers were signing deals at near-market rates, MSC Vice President Allen Clifford said, “I guess some are.” Soren Toft, chief executive of the world’s largest carrier, declined to comment onstage at TPM23 on Monday.
Customers and carriers don’t often discuss contract talks, but these latest revenue calls call officials from Walmart — America’s top container shipper — furniture retailer La-Z-Boy (LZB.N), the maker of Mattel Toys Inc
Reporting by Lisa Baertlein in Long Beach, California. Editing by Ben Klayman and Matthew Lewis
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