Trans-Pacific Maritime

Special Report

COMMENTARY

By John McCauley

The market is in balance right now , but if the Red Sea reopens , all bets are off .

It would be easy to be distracted by the noise in the supply chains of any organization today that has non-discretionary reliance on container shipping . By that , I mean the organizations that have no transport or supply alternatives and are consigned to finding the right answers for their freight procurement .

There is plenty of noise to contend with : some certainties ( the Red Sea , China tariffs ), some threats ( more tariffs ) and many unknowns ( service levels under the new alliances ). However , stripping all that away , it is essential for beneficial cargo owners ( BCOs ) to focus on what they know . And what they know is what volume they can anticipate today for the forthcoming months up to a year , what their price history is with all carriers , and a view on what they can and cannot afford should rates go against them .

What is also clear is that BCOs have learned a lot from the pandemic era about managing supply chain risk , balancing stock-outs and missed sales versus inventory carry , and to be less reliant on air freight as a reliable and available backup plan .

BCOs have also seen a marked shift in carrier behavior . While relationships still count for tactical requirements , many of the decisions that were made locally — for example , space availability for BCOs in excess of agreed quantities — have now been elevated to regional or central decision makers . Carriers are not passing up opportunities as they may have in the past , and BCOs and forwarders are feeling the impact .

BCO chatter

So how does this play out for the current contracting round ? Here are some takeaways from discussions I am having with BCOs .

Firstly , carriers are as cautious as BCOs in their approach . The potential for massive overcapacity should the Red Sea really open up — not just words or temporary truces — is a systemic threat to carriers . While carriers are progressively mastering the dark arts of blank sailings , inexplicable and / or unexplainable surcharges , and other supply restraints and revenue enhancements , no amount of these tactics will be sufficient to deal with the oversupply of capacity once the Suez Canal reopens .

Secondly , an early indicator of a carrier ’ s expectations is its willingness to engage in threemonth contracts , at best six , with a significant premium for a full year . Furthermore , very few carriers — I haven ’ t heard of any — are willing to give rates inclusive of surcharges . BCO tenders often specifically exclude surcharges , thereby giving surcharges a degree of credibility but also with a requirement they be discussed and agreed ahead of time for both the level of the surcharge and its duration .

Thirdly , rate levels for backhauls continue to decline , and depending on the cargo characteristics , destination , weight , etc ., close-to-zero all-in freight rates are back .

Fourth , there is high skepticism of the new service levels , particularly Gemini Cooperation and its ability to settle into expected ( not promised ) service levels . There is seemingly no appetite from carriers to link pricing to performance , even if shippers are willing to consider no or delayed show from their side . This surely indicates that carriers acknowledge they do not expect significant improvement , at least in the short term .

Finally , many BCOs recall the shenanigans about minimum quantity commitments ( MQCs ) and a 52-week division being held against them , particularly when volumes grew and space was denied or only given at premium rates . BCOs will likely commit to less than 100 % MQC to protect themselves on the upside and , regrettably , have some margin should volumes fall .

De minimis unknowns

What to make of all of this ? The market is back in balance right now . BCOs I spoke to are not factoring in a return to Red Sea transit for this year .

On that basis , the logic would be to stay in the short-term market of three months to a maximum of six . A full-year rate will likely attract a premium , but that may well be acceptable .

The final thing to watch out for is the de minimis drama . It is not out of the question that air freight volumes may be adversely affected , and China exporters may find new solutions to deliver these items cheaply in the US and Europe . I expect this would not significantly affect the sea freight market , but it may make air freight cheaper for promotions , urgent shipments or high-value goods currently consigned to sea that could switch back to air .

Of course , if the Red Sea does reopen and traffic resumes through the Suez Canal , all bets are off for rate levels . It would be worse than any slump seen in the 2010s .

email : john-mccauley1 @ outlook . com

20 Journal of Commerce | March 3 , 2025 www . joc . com