Drewry lists 4 priorities for 2023 ocean deals
“It will be tempting but not advisable for shippers to 'seek revenge’ against & drop previous carriers and NVOCCs.”
From under-supplied and extremely costly to balanced and more favourable to shippers, the ocean transport market has shifted in the last six months, says Drewry in its latest update.
"But what are the key aspects which shippers/BCOs should now consider to take advantage of their improved negotiating position?"
Drewry has listed out four possibilities for beneficial owners to understand the 2023 ocean freight rate scenario.
1. Should we move away from fixed rates and switch to the spot market?
"With spot rates on certain routes to and from Asia now 40 percent lower than contract rates, many exporters and importers are considering whether to move away from contracts and go instead to spot-rate arrangements with forwarders/NVOCCs. Some are even looking at switching mid-contract.
"The pros and cons of such decisions depend on the shipper's circumstances including contractual commitments and penalty clauses. Drewry's advice in most cases is that shipping is not just about cost, and it is better to go to existing providers to request a reduction in contract rates than to damage existing business relationships and service levels.
"For smaller shippers, who suffered the most and in many cases were unable to secure enough capacity from ocean carriers at fixed rates during the shipping boom, the spot market makes more sense. But it requires more staff, more time making or correcting ad hoc arrangements, and awareness that spot arrangements provide less support from carriers or NVOCCs when things go wrong (e.g. impact of the rising number of "cancelled sailings")."
2) Should we expect lower contract rates in 2023 and go to bid later?
"Yes and yes – the later you go to bid, the lower the contract rates are expected to be, based on unique forecasts from the Drewry Container Forecaster research. Spot rates on many trade routes have plunged by up to 50 percent since their peak. Contract rates in early bids are coming out lower than previously and Drewry expects further falls in contract rates during 2023, as over-capacity increases.
"The market is currently changing and uncertain – there is nervousness among carriers about how to price contract rates. This is another reason why, if possible, you should try to extend your contract rates by three months with your existing providers and go to bid later.
"Contrary to previous ocean bids when our advice was to go to bid as early as possible to make sure that shippers secure (scarce) capacity, this time the recommended strategy is to go to bid at the normal time (or after a contract extension) to take advantage of the weakening market and falling contract rates."
With the market moving to over-capacity, the pendulum will swing again and shippers can review their contract and request more free time (within reason), longer payment terms and higher service level commitments from carriers, the update added.
Drewry also has a warning for shippers: "It will be tempting – but not advisable – for shippers to 'seek revenge' against and drop previous ocean carriers and NVOCCs."
Pointing out that there are now only nine global ocean carriers, "most medium and large-size BCOs will need to work with five or more of them for the foreseeable future." Restoring business relationships will be a key consideration in 2023, the report said.