The global economy is slowing down. Consumer confidence is also starting to wane. As a result, the containership industry is starting to see a softening in global container volume. U.S. importers are watching closely to see how this global softening impacts rates and capacity in the Asia-to-U.S. market.
The initial impact is clear. Spot rates from Asia to the U.S. are on the decline. This is welcome news for shippers that rely on spot rates to ship their cargo. The news is not so welcome for shippers that were pressed to sign contracts at extremely high rate levels in exchange for weekly container allocation. Some shippers opted to sign two- or three-year contracts to lock in long-term space guarantees.
It is not unusual for spot rates to dip below contract rates during certain times of the year. Excluding the last two years, this has been a common occurrence in the containership industry for the last 30 years. Carriers are doing their best to qualm the fears of contract holders. They expect spot rates to reverse course and gradually increase as the Asia-to-U.S. market enters its busiest shipping period.
What happens if spot rates don’t reverse course in July or August? The uneasiness already being shown from contract holders will intensify. Carriers could react by canceling sailings or reducing capacity to increase spot rates. This tactic has been used by the carriers in the past. However, any decision that reduces available space for shippers will be under intense scrutiny from the Federal Maritime Commission and every major U.S. trade group.
If carriers are unable to stabilize the spot rate, contract shippers will eventually start to push back. Renegotiating some of their contract rates will certainly be on the table. Whether or not carriers will entertain lowering contract rates will depend on how badly demand and inflation have impacted the Asia-to-U.S. market.
