Commentary Trading Places

By Peter Tirschwell

NVOs go into 2025 hoping their experience in 2024 was merely cyclical , a product of an unusual market

Non-vessel-operating common carriers ( NVOs ) will look back on 2024 as a challenging year in two key respects : carriers , seizing on an unexpectedly favorable market , got tough in demanding more spot cargo as a condition for granting contracts to NVOs ’ customers and closely monitored their adherence to those contracts .

“ In 2024 , ocean carriers began tightening their grip on the market ,” analyst Jon Monroe wrote in Nov . 19 advisory . “ They became more selective with NVOCC contracts , making ‘ named account ’ deals , [ i . e .,] contracts reserved for large , high-volume customers , harder to secure .”

NVOs will go into 2025 hoping that experience was merely cyclical , a product of an unusual market following Red Sea diversions and an early peak season . For shippers , the idea that carriers are pressuring NVOs is relevant in terms of NVOs ’ ability to access vessel space . Indeed , some BCOs have recently raised concerns about the presence in their NVO contracts of clauses absolving the NVO if space can ’ t be procured .

Unfortunately , there is no guarantee the market will weaken in the New Year even as a glut of capacity threatens to weigh on the market . Some NVOs contacted by the Journal of Commerce believe a softening is likely next year — and may already have begun . But others believe the stretch of good fortune for carriers — seen in a fully deployed fleet and still-elevated spot rates — hasn ’ t run its course and won ’ t until the Suez Canal route becomes safe again , whereupon capacity will pour back into the market .

Maersk CEO Vincent Clerc suggested as such in a recent earnings call , noting carriers have untapped levers to forestall overcapacity . Maersk “ highlighted that supply discipline in the form of slow steaming , blanked sailings and scrapping could emerge once the market returns to a normal level of profitability ,” Parash Jain , global head of transport and logistics research at HSBC Commercial Banking and a TPM25 speaker , wrote on Nov . 1 .

For NVOs , as long as carriers are in control such that spot rates end up higher than contract rates , carriers will demand more spot market cargo , also called freight-all-kinds ( FAK ), as the price for granting NVOs ’ contract , or named account rates ( NAC ), for their BCO customers .

“ The ratio between NAC rates and FAK rates varies among different carriers ,” said Marc Meier , global head of ocean freight at Toll Global Forwarding . “ However , we are observing an increasing demand for a more balanced approach as we approach 2025 .”

Christian Sur , executive vice president for ocean freight / contract logistics at Unique Logistics International , sees an already softening market reflected in carriers ’ evolving positions relative to NVO cargo .

“ Carriers have taken such a policy each year during annual negotiations on NAC rates to request for at least 50:50 on NAC / FAK bookings , but when space is tighter , some even ask for 4:1 [ FAK to NAC ] to even 5:1 as happened in June and July of this year ,” Sur said . “ We are back to 1:1 or even a better ratio to receive NAC space .”

Others see it similarly , given that new tonnage deliveries will add 11 % to existing capacity by the end of 2024 and another 6 % next year , growth only minimally reduced by scrapping at least so far , according to S & P Global Market Intelligence .

“ NVOCCs could find themselves in a more favorable position in 2025 as the market shifts and carriers face increased competition to fill excess vessel capacity ,” Monroe wrote in his advisory . “ With the surge of available capacity in the ocean freight market , carriers are likely to adopt more flexible and reasonable terms for NVOCCs in order to maintain their vessel utilization .”

Carriers ’ NVO policies this year forced some NVOs to be more aggressive in scrounging up FAK cargo , often from the smaller end of the shipper market that is too small to secure contract rates .

But while market cyclicality might make carriers hungry for NVO cargo , what will likely not change so fast is carriers ’ increasingly sophisticated monitoring of NVOs ’ use of named account rates , especially when spot rates exceed contract rates .

That monitoring has disrupted longstanding practice under which NVOs — when contract rates fall below spot rates — utilize named account rates to ship multiple shippers ’ cargo , not just the shipper named in the account , thereby taking advantage of lower rates than those on the open market . Not anymore , as carriers have developed technology and systems enabling them to closely monitor NVO named account volumes . When they see commodities or volumes shipped beyond what was agreed in an NAC contract , or the NVO not providing agreed-upon volumes in a given month , they intervene .

In a soft market , carriers may pressure NVOs less but won ’ t stop monitoring the volumes . That is something unlikely to change irrespective of where the market goes .

email : peter . tirschwell @ spglobal . com

62 Journal of Commerce | December 2 , 2024 www . joc . com