Air and Sea Shippers Consider Index-Linked Agreements Amid Rate Uncertainty
Shipping carriers and shippers are facing challenges with freight rates, leading to interest in index-linked agreements (ILAs) as a risk-reduction strategy. Stanley Smulders from ONE notes the volatility of rates, especially in the Asia to Europe trade. ILAs, more common in air freight, offer a balance between fixed-rate contracts and spot market negotiations, aligning with market prices and reducing the likelihood of contract breakdowns. Upper and lower limits in ILAs are suggested for more effective pricing control.
Carriers Make Last-Ditch Effort for General Rate Increases Due to Weak Spot Rates
Asia-Europe ocean carriers are concerned about annual contracts being reset at lower levels due to the failure in boosting container spot rates. CMA CGM and Hapag-Lloyd have reintroduced general rate increases (GRIs) to elevate prices, hoping tighter capacity management will support these efforts. However, the actual market rates remain low, and Maersk has reported a loss due to these rate trends.
Diversifying Container Production Beyond China: Pros and Cons
A survey by Container xChange found that 54% of professionals don’t see moving container production out of China as beneficial for the supply chain. The industry faces challenges in container repositioning and an oversupply of containers. The shift towards countries like Vietnam and India brings up concerns about quality and higher costs. China’s dominant role in container production is attributed to its vast production capacity and immediate domestic demand for containers.
Surge in Airfreight Rates in Hong Kong Amid Capacity Constraints
Hong Kong’s airfreight market is experiencing a 30-40% rate increase due to capacity limitations during peak season. Airlines have not planned additional capacity, leading to skyrocketing charter rates. The focus is on how airlines can better manage ecommerce volumes during low and peak seasons, and market volatility is expected to continue into the next year.
Incheon Port Sees Rise in Boxed Vehicle Traffic Due to Demand in Russia
Incheon Port in South Korea has witnessed a significant increase in containerized used car exports, driven by demand from Russia. The first nine months of the year saw a six-fold rise in containerized used car exports. The surge is attributed to international sanctions affecting automobile production in Russia and the lower costs of container shipping compared to car-carriers. The Middle East has also seen an increase in South Korean containerized car exports.
House of Shipping Insight
The shipping and logistics sector faces challenges such as rate volatility, the debate over container production diversification, capacity management in airfreight, and changing global trade patterns. Index-linked agreements are being considered to mitigate rate uncertainties, but their effectiveness depends on market dynamics. The shift of container production from China to countries like Vietnam and India raises issues regarding costs and supply chain efficiency. In airfreight, capacity constraints highlight the need for improved demand forecasting, particularly for ecommerce volumes. The rise in vehicle traffic at Incheon Port due to demand in Russia and the Middle East reflects the evolving nature of trade patterns, indicating a need for strategic agility in the industry.