Setting the floor

Top US retailers sign service contracts at significantly higher rates than in 2023 – 24

By Bill Mongelluzzo

Several of the largest US retailers in early April signed 2024 – 25 service contracts for the eastbound trans-Pacific at rates that are roughly 12 % to 17 % higher than last year , industry sources say , with the bargaining power of ocean carriers fortified by spot rates that are much stronger than they were a year ago .

The deals for the upcoming service year in the largest US trade lane were inked in the range of $ 1,400 to $ 1,450 per FEU from Asia to the West Coast for the very largest retailers , up from about $ 1,200 to $ 1,300 in the current contracts , the sources said . New Asia – East Coast contract rates are about $ 800 to $ 1,000 higher .

Most , though not all , service contracts for the eastbound trans-Pacific trade begin on May 1 and run through April 30 of the next year .

The Journal of Commerce spoke with representatives of three ocean carriers , half a dozen non-vessel-operating common carriers ( NVOs ), three shippers and three industry consultants for this story .

“ There ’ s some strength in this market ,” said one carrier executive who asked not to be identified .

That strength is best demonstrated by spot rates that , while cooling significantly from recent highs linked to the Red Sea crisis , are still far higher than this time last year .

Spot rates from Asia to the West Coast were pegged at $ 2,800 per FEU as of April 8 , up from $ 1,075 per FEU on April 6 , 2023 , according to Platts , a sister company of the Journal of Commerce within S & P Global . Asia – East Coast rates of $ 3,200 per FEU were 72 % higher than a year ago . Another carrier executive said container ships are leaving load ports in Asia at 80 % to 85 % utilization , which is keeping spot rates relatively high , thereby giving carriers increased leverage in service contract negotiations with their customers .

The relatively high spot rates reflect a buoyant import market at present that will likely get stronger in the spring and summer months .

The flurry of surcharges that carriers began charging last fall in response to drought restrictions at the Panama Canal and Houthi attacks on shipping in the Red Sea that have forced carriers to reroute vessels around the southern tip of Africa are generally being incorporated into all-inclusive rates , NVOs said .

“ So far , they seem to be rolled into the base rate ,” said Rachel Shames , vice president of pricing and procurement at the NVO CVI International .

Mid-sized shippers on deck

Now , the action in the eastbound trans-Pacific will turn to carriers ’ service contract negotiations with mid-sized retailers and importers , and then to the NVOs . According to the Journal of Commerce ’ s Top 100 listing of US importers , the six largest retailers in 2023 imported between 200,000 TEUs and more than 930,000 TEUs . They set the floor for service contract rates . Another half-dozen shippers imported between 100,000 and 200,000 TEUs . There were dozens of shippers considered mid-tier who shipped 30,000 to 100,000 TEUs .

An industry consultant and former logistics manager at two national retailers said he expects carriers to move “ aggressively ” to conclude service contract negotiations with the mid-tier importers before the end of April , with rates likely to settle between $ 1,500 and $ 1,600 per FEU .

“ They ’ re looking to get vessels filled , period ,” the consultant said .

Kevin Krause , vice president of operations and marketing at Hustler Freight Logistics , agreed that contract rates for mid-tier importers will range from $ 1,500 to $ 1,600 per FEU , and with vessel space “ readily available ” right now ,

Trans-Pacific spot rates moderating amid service contract talks

Container spot rates from North Asia to US West and East coasts , in USD per FEU

USD per FEU

$ 10,00000

$ 8,914

$ 8,000

$ $ 10,000 6,000

$ 4,000

$ 2,000

Source : Platts , S & P Global

$ 0 L May , 2022

Jul Jan 2023

Jul Jan 2024

North Asia to US East Coast

North Asia to US West Coast

The largest US retailers have signed contracts with Asia – US West Coast rates of $ 1,400 to $ 1,450 per FEU . Shutterstock . com

16 Journal of Commerce | April 22 , 2024 www . joc . com

April 22, 2024 | Page 16

Setting the floor