As we move into 2014, and begin to address some of the obvious challenges facing the trans-Pacific eastbound trades, let’s address some cold hard facts about rate levels and how the ocean transportation intermediaries and the vessel-operating common carriers interact.
Recent reports by industry authorities have pegged the overall eastbound volume at some 18 million to 20 million TEUs. The same authorities place the non-vessel operators’ share at 40 to 45 percent. Using the lesser of both, NVOs’ share is approximately 7.2 million TEUs. This volume is produced by bookings from master NVOCCs and the balance by co-loaders, those OTIs with insufficient volume to sign a confidential service contract at a rate competitive enough to sell the space themselves. As such, they ride the coattails of the larger NVOCC, and pay a co-load fee, in some cases as low as $25 to $50 for contract usage. Some industry insiders believe that of the 7.2 million TEUs lifted by NVOCCs, 65 percent or 4.7 million comes via co-loading.
In the 1980s, carriers had very strict contract wording, prohibiting co-loading except by those OTIs that have a common financial tie (parent). This gradually slipped to operating partners, so that the Party in Asia could sign the contract, and Party B in the U.S., the agent-partner of the Party in Asia could also book cargo to this contract, and vice versa.
Why did the carriers eliminate this clause from their contracts? Some say it was so they could reduce their direct sales expenses, and allow master loaders to provide their volume. The math makes little sense. A $100 movement downward in a rate due to the removal of a “no co-loading clause” over a volume of 4.4 million TEUs equals $4 billion in loss revenue (annual) based on today’s volumes, and in excess of $60 billion over the last three decades.
As to the confidentiality within service contracts, it does not exist. As soon as a master loader in Shanghai receives its new weekly reduced ($50) rate to Los Angeles/Long Beach, the market knows it, copies are distributed to all co-loaders and the rates drop again.
Bill Woods Jr. is Managing Director and Founder at America's Sales Agency.