Broken container contract system – BCOs look to short-term deals

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BCOs will commit 25% less volume to long-term contracts this year, sending almost twice as much through short-term and spot deals.

“This strategy will leave carriers with fewer contracted and planned containers and BCOs who will devote more time and resources to renewing and negotiating contracts this year, although prices for these may increase anyway,” says a Freightos Research report released today.

The online freight market surveyed 63 BCOs and freight forwarders in March, just before the trans-Pacific contracting season, and compared the results with a similar study from 2018.

The responses show “how tough the year has been” for BCOs and freight forwarders, Freightos said.

Respondents say they have 70% more containers rolled and an 87% increase in the impact of spot rate volatility on their logistics spending, compared to three years ago.

“Freight forwarders and BCOs also plan to seek greater reliability through redundancy; that is, to contract with several carriers, ”said Freightos.

The past year clearly shows “the most often overlooked fact in the ocean freight industry: contracts in their current form are broken,” he said.

“This year, more than ever, has undermined demand confidence in ocean contracts,” he added. “At times in 2020, some of the major carriers were rolling half their containers, including contracted containers replaced with one-off bookings or costly surcharges added to contract rates,” Freightos said.

But he added that the volatility had “caused pain on both sides of ocean contracts.”

“Carriers lament canceled orders and no-shows at the start of the pandemic affecting their ability to manage usage levels and plan capacity levels, and BCOs worry they won’t be able to move all of their volumes at contract rates. when the capacity is tight. “

Carriers are under pressure from shareholders to maximize profits in the lucrative cash market, but at the same time, they want to ensure they have the backing of contracted freight when the demand bubble does eventually burst. A carrier source said The charging star recently, the debate between short-term and long-term business was causing “a real break” in marketing meetings.

“On the one hand, it’s hard to ignore the massive returns in the cash business, but some key account managers strongly argue that this is a short-sighted strategy to reduce or ignore bidding.” for annual contracts, ”he said.

In addition, if the industry moves towards shorter term agreements, it will take more time for carriers and shippers which could be used to develop their respective businesses.

“Redundancy could also mean less leverage for BCOs / freight forwarders and less reliable volumes for carriers,” Freightos said.

“The past year has only made it more evident in freight what other industries have long known – players in volatile markets need tools to manage risk even in times of crisis.”

The report was released ahead of a joint Freightos and Baltic Exchange discussion webinar this afternoon, in which the survey results and the way forward for the industry will be discussed.

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