SAN FRANCISCO—Shippers and carriers say that reliable ocean service is a key consideration when they negotiate service contracts, but in reality price usually trumps service when customers book their cargo, according to maritime industry analyst Lars Jensen.
If shippers and carriers were truly collaborating, shippers would be willing to pay premium rates to those carriers that provide superior service, but that has not been the case in recent years, said Jensen, who is CEO of SeaIntel Maritime Analysis.
Jensen said 17 of the top 20 ocean carriers perform at the same level in terms of on-time reliability. Two carriers – Maersk Line and Hamburg Sud – consistently perform better than the others and Mediterranean Shipping Co. has below-average on-time performance, Jensen told the Navis World 2012 conference.
Yet over the past 10 years, Maersk has not grown organically while MSC continues to grow organically, Jensen said.
Rather than build close working relationships with their carriers through the normal ups and downs of the market, most shippers renegotiate contracts when rates are falling rapidly. Carriers, meanwhile, will impose surcharges when space is tight, he said.
The Asia-Europe trade is the king of rate volatility. About 97 percent of the contract rates in that trade are correlated to spot rates. Contracts in the Asia-Europe trade tend to be of short duration – three to six months.
Yet, even though the typical contract in the trans-Pacific lasts for one year, a high percentage of contract rates in the trans-Pacific trade are also correlated to the spot market, Jensen said. The reason is that the parties often times do not adhere to the terms of the contracts.
Trans-Pacific carriers this year signed contracts with beneficial cargo owners that in retrospect were marked by non-compensatory rates. The carriers then implemented five or six general rate increases throughout the year, most of which were charged to non-vessel operating common carriers but not to BCOs.
Carriers were able to hike the rates on NVOs because they successfully managed capacity in the trans-Pacific this year. Jensen said carriers will probably not be able to pull off the same strategy in 2013.
“Carriers want to repeat it, but rates in the trans-Pacific will fall,” Jensen said. There is “structural over-capacity” in the global container trades today, and it will be present for a long time, he said.
As a preview of what to expect after the 2012 peak season, Jensen pointed to carrier behavior in the first week of October when many factories shut down in China for the National Day celebrations. Carriers removed very little capacity from the trans-Pacific that week, he said.
Although spot rates are still relatively strong, carriers must remove a significant amount of tonnage from the trans-Pacific during the slack season if they hope to avoid a rate war similar to the rate slashing that plagued the Asia-Europe trade this year, Jensen said.