Shippers Faced with High
Freight Rates and Strong Demand
The Asia to U.S. market is experiencing a heavy surge in demand. The surge has caused freight rates to increase substantially over the last month. This has been costly for shippers that rely on the spot market to move their cargo. Shippers can expect spot rates to continually increase as long as demand outpaces available capacity.
The strong market condition has caught many shippers by surprise. Some shippers are already scrambling to find sufficient space to fulfill their weekly container requirements. Carriers recognize the market is turning in their favor. They quickly announced peak season surcharges to apply on cargo starting in June. The peak season surcharge amounts vary by carrier but range between $400 – $1,000 per container.
The question on everyone’s mind is how long the surge in demand will last. Is the surge a short-term spike or could it last through the entire shipping season? There are several factors that could explain why the surge is taking place. First, shippers are pulling orders forward to avoid the chaos that will prevail if the ILA decides to go on strike in October. Secondly, orders are also being pulled forward to avoid potential tariff’s that could be implemented depending on the presidential election results. Finally, companies are in the process of restocking inventories.
Demand is forecasted to grow between 4% – 5%, which is far less than what the current market is experiencing. Some carriers believe the current spike in demand will likely be short-term. If that turns out to be the case, shippers can expect spot rates to gradually decline once the spike has subsided. While the decline in rates would be good news for spot rate shippers, spot rates would still be significantly higher than fixed contract rates.
IHSA concluded ocean contract negotiations by signing service contracts with the top carriers in the Asia to U.S. trade. The contracts ensure that IHSA members have access to competitive fixed rates, allocated space and reliable services. Most importantly, IHSA members are protected from massive rate hikes and space limitations.
