The days of carriers offering lower rates for large volumes are gone, as stability returns to the trade, says consultant
Shippers should not negotiate contracts with the attitude that “volume is king”, as carriers are now more concerned with profitability than market share, according to a leading consultant.
In its Annual Container Market Review and Forecast 2010/11, Drewry Shipping Consultants said the days of carriers offering lower rates for large volumes in order to grab market share were gone and shippers should, therefore, work more closely with carriers to get value out of contracts. The report also suggested the drive to remain profitable also meant carriers would only increase active tonnage if the necessary volumes were there. And the basic contract between shipper and carrier should no longer be seen as a straight rate deal, as slow-steaming, fewer services and an increasing number of vessel-sharing agreements had changed the shipper-carrier relationship.
Drewry said: “Shippers and carriers need to think much more creatively and to work together constructively to provide much-needed security in the supply chain. “The relationship between the two parties must be repaired and carriers must now look to properly differentiate themselves once again from their competitors.” Drewry’s Neil Dekker, who edited the report, said: “Carriers will react decisively by taking capacity out of the system and will not return tonnage in 2011 until demand has shown the required upturn.
“Maintenance of the positive supply/demand equilibrium next year is dependent on the continuation of this disciplined approach. “Lay-ups could be a feature if there is any fear of overcapacity returning. By managing capacity at the individual trade route level, they [the carriers] have been able to rapidly improve freight rates and their profitability.”
The report said container rates had doubled in the core east-west trades and were nearly back to 2008 levels. While the spot market rates on east-west routes had weakened in recent weeks, they would not show further significant declines, as carriers would react by pulling out tonnage.
Drewry also said it did not expect to see east-west freight rates increase next year, and predicted mid to long-term container growth to be about 7% a year for the next five years, representing a return to stability for the industry.
Source: Damian Brett, IFW News, 12 October 2010