Ocean contract negotiations covering cargo moving from Asia to the United States are nearing completion. The negotiation process has become very cumbersome for shippers due to the lack of communication provided by the carriers.
A large part of the lack of communication can be blamed on the recent wave of acquisitions that have taken place in the containership industry. Fewer carriers are now tasked with negotiating more and more contracts with even less personnel. The negotiation process also lacks the relationship aspect it had years ago. Most people involved in the negotiations refer to the process as organized chaos. Even with the chaos, shippers and carriers somehow manage to finalize new contracts prior to the expiration of the old contracts.
Carriers were hoping the momentum from 2017 would spill over into the 2018-19 contracts. By the middle of March, it was apparent that the carriers were not going to achieve the rate increases they had hoped for when contract negotiations started in February. The rate increases the carriers initially proposed in the Asia to US market were quickly eliminated. In some cases, the increases were totally rebuffed and turned into rate decreases.
There are always exceptions to how rates are determined in the Asia to US trade lane. The current shortage of truck power in the US clearly played a role in the negotiations. Trucking companies providing services involving longer distances have the leverage. They have been successful in passing along higher trucking rates to the carriers. The carriers in turn are passing along a percentage of these added costs to shippers. Depending on the location and truck capacity available, some carriers are refusing to quote rates unless the shipper provides their own trucker. So far, the refusals to quote rates and services have been limited to remote areas in the US.
Overall, the carriers cannot be pleased with how the negotiations unfolded. That said, they will likely remain profitable for 2018 unless market share gains start to trump profitability. Carriers have vowed not to revert to tactics that led to the financial collapse of their industry back in 2016. For the sake of stability, we hope the carriers show some restraint and start focusing on providing quality service.
The International Housewares Shippers Association (IHSA) is a not-for-profit association formed to benefit companies belonging to the International Housewares Association (IHA). Through the combined leverage of members, IHSA negotiates freight contracts and partners with other logistics providers to lower supply chain costs.
IHSA’s main function is to negotiate the lowest possible transportation rates and provide the highest quality service for all participating members. Additionally, IHSA members receive valuable market intelligence and advice through regular newsletters and briefings.
IHA member companies looking to reduce their ocean freight costs or have questions about an ocean freight issue are encouraged to contact IHSA to learn about the program. Contact IHSA at +1-513-489-4743 and learn more on our website.
