Efforts by ocean carriers to prop up rates by reducing sailings last year came at the exact wrong time for importers, coinciding with President Trump’s announcement of additional tariffs on Chinese imports. As shippers raced to beat the effects to their bottom lines, imports hit a record 21.6 million TEUs in 2018 – and spot rates skyrocketed accordingly.
Just a few months into 2019, several factors are already keeping spot rates at higher-than-normal levels:
- High import volumes: Demand for cargo space has remained elevated among shippers looking to beat additional tariffs, with January imports rising an estimated 4 percent over the previous year.
- Trade uncertainty: While the March 1 tariff deadline has come and gone, continued back-and-forth between the U.S. and China make it unlikely that rates will drop anytime soon.
- Bunker fuel costs: With carriers facing rising fuel costs and an impending 0.5 percent global sulfur cap on fuel content, shippers will undoubtedly see the effects reflected in their rates.
Navigating contract season effectively
As shippers enter contract negotiations, they will need to work with carriers to find a middle ground that balances cost with capacity to keep their supply chains moving. These strategies can help businesses lock in the capacity they need without compromising their budgets.
- Focus on total spend, not on rate. Trying to negotiate contract rates at the lowest possible level will ultimately wind up costing you more. Rather than trying to nickel and dime contract rates, focus on choosing a reliable carrier who will keep your shipments on time and on budget.
- Map your supply chain. Truly optimizing your ocean freight spend requires taking a critical eye to your supply chain. A centralized technology platform offers insight into every mode, carrier, shipment and more, so you can spot opportunities for improvement and make informed decisions during negotiations.
- Be ready for the unexpected. A provider with a deep network of relationships can be invaluable in accessing affordable capacity when disruptions inevitably arise. A little logistics creativity, such as changing the port of discharge, can also help lessen the impact of disruptions.
Want additional tips on managing ocean freight season without sinking your budget? Read our recent article in the Journal of Commerce, “Navigating 2019 ocean contracting.”