Double-hedged sword

Some trans-Pacific carriers seek to reopen 2024 – 25 fixed-rate contracts : NVOs

By Bill Mongelluzzo

Ocean carriers in the eastbound trans-Pacific trade are increasingly confident that a rate war can be avoided through the Lunar New Year period , when many factories in Asia will close for about two weeks beginning in late January . They are concerned , however , that spot rates may not rebound as they normally do in the spring because carriers are scheduled to add at least 1.6 million TEUs of new capacity to the global fleet in 2024 – 25 .

As a result , non-vessel-operating common carriers ( NVOs ) say some liners have approached them with offers to renegotiate their 2024 – 25 fixed rate , also known as named account contracts , most of which are set to expire on April 30 .

It ’ s a play by carriers to tempt NVOs with a reopened annual contract that , while higher than the deal they signed last spring , is still below current spot rates that have fallen from an early-summer peak .

“ We ’ ve had a couple of carriers approach us with that offer ,” said Kurt McElroy , executive vice president of the NVO Kerry Apex .

Current NVO named account rates range from about $ 1,600 to about $ 2,000 per FEU . If the NVO agrees to pay an additional $ 1,000 per FEU , carriers are offering to lock in the new rate through the contract expiration date of April 30 .

Tumbling trans-Pacific spot rates remain well above 2023 levels

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

USD per FEU

$ 10,000

$ 8,000

$ $ 10,000 6,000 $ 5,275

$ 4,000

That would give NVOs a hedge if imports increase and they exceed their fixed rate allocations .

When that happened in June , NVOs were paying freight-all-kinds ( FAK ) rates in excess of $ 6,000 per FEU . Terms and conditions of the contract , such as increasing the minimum quantity commitments ( MQCs ), are usually negotiable , McElroy said .

Jon Monroe , who serves as an adviser to NVOs , said forwarders could use the contract renegotiation as an opportunity to increase their MQCs and lock in the fixed rates for the next six months . In other words , if the named account rate is $ 2,000 per FEU to the West Coast and the NVO agrees to pay $ 3,000 and possibly increase the MQC , the NVO will have locked in a favorable fixed rate for the life of the contract , Monroe said .

However , an opposite scenario could also play out , according to Rachel Shames , vice president for pricing and procurement at the NVO CV International . If FAK rates tumble , as they did this January , the NVO would save money by just paying the FAK rate .

“ There ’ s a good chance [ FAK ] rates will keep falling ,” Shames said . “ You have to look at what your risks are . Nobody knows what the last six months of these contracts will look like .”

Frontloading for spring 2025

$ 2,000

$ 0 L Jan 2023 Jul Jan 2024 Apr , 2024 Jul North Asia to US East Coast North Asia to US West Coast

Meanwhile , the frontloading of spring 2025 merchandise by retailers could lift US import volumes from Asia during the normally slack months of November and December and prevent a collapse of spot rates later this year in the eastbound trans-Pacific , forwarders say .

Imports of merchandise linked to Valentine ’ s Day and spring activities that would normally begin shipping in

18 Journal of Commerce | October 7 , 2024 www . joc . com

October 7, 2024 | Page 18

Double-hedged sword