Truck shipping

Chaos of shipments gives major importers a “considerable competitive advantage”

The Asia-US container market is now in a class of its own, with the price of eastbound trans-Pacific trade being different from any other route in the world.

Because the stimulus-induced demand is so high relative to capacity – not just the capacity of ships and boxes but of ports, trucks, railways and warehouses – the prices spread high and low transpacific spot exploded.

Larger importers pay far lower freight rates than smaller importers, the playing field is becoming increasingly unequal, and foreign shipping carriers are able to pick winners and losers in the US import sector.

“We see a price difference of $ 15,000 [per forty-foot equivalent unit or FEU] between the lowest short-term price of the [trans-Pacific] market and the highest price, ”said Erik Devetak, product and data director of Xeneta, a Norwegian company that analyzes freight rates, at a press conference Thursday.

“This implies a huge competitive advantage for established players, which has consequences for the economy and daily life, but also from the point of view of lowering competition and increasing barriers to entry for future competitors. ”

Patrik Berglund, CEO of Xeneta, added: “Everyone sees prices going up, but… being really big is really a huge competitive advantage in this market. “

Berglund warned: “When I think of the small family importers and exporters, I’m really concerned that if this lasts, the big guys can eat up even more market share just because the infrastructure is now so tilted in favor. great players.

Origins and destinations matter much more

According to Devetak and Berglund, the trans-Pacific is no longer a single maritime market with a single “fair price”. On the contrary, the wide gap between high and low prices has allowed carriers to split the trans-Pacific into several market layers. This explains why different container indices show very different spot rates for the trans-Pacific.

“There are now a whole bunch of different markets for different situations and different import settings,” Devetak explained.

$ / FIRE (Graphic: Xeneta)

The original port has become a key parameter. “Historically, when you think of a single trans-Pacific market, if you go back a year, or a year and a half to pre-corona, the price differential between shipments from China, Taiwan, Japan or Singapore [to the west coast] was small – $ 100, $ 150, $ 250 [per FEU] max – in the range of 5-10% of the market rate, ”Devetak said.

“Right now we see the prices from China [to the U.S.] may be $ 2,500 lower than prices available in Taiwan or Japan and $ 3,000 less than in Singapore. Shipping from Busan may cost 40% more [South Korea than from China]. This is a striking price difference.

“There seems to be a strong preference [among carriers] to have a large port in China as the port of origin and it seems that every other origin is indirectly punished, probably because by focusing on the main ports in China, one can deliver more goods and thus have the lowest profits. higher.

$ / FIRE (Graphic: Xeneta)

There are also transpacific price disparities on the destination side. “Basically anything that isn’t in Los Angeles is preferred because you’re going to find yourself stuck waiting for a bunk in Los Angeles,” Devetak said. Short-term fares to Los Angeles / Long Beach can now be $ 1,000 higher per FIRE than fares to Vancouver.

There is much less “geographic dependence” for pricing in the Asia-Europe trade route compared to the trans-Pacific, Devetak noted.

Attractive clients vs. unattractive clients

Xeneta also found price differentiation regardless of origin and destination. He looked at short-term rates for cargoes from China to Los Angeles and found “huge developments in the market split between the best and worst performers,” Devetak said.

$ / FIRE (Graphic: Xeneta)

The spread between high and low China-Los Angeles rates was $ 150 last year, or 5% of the market rate. It is now $ 1,200, or 20% of the market rate. The gap has only widened recently, in the last few months.

“It’s the price difference between what is an attractive customer for the carrier and what is a less attractive customer for the carrier,” he continued.

An attractive customer is usually a customer with large volumes, a strong pre-existing relationship with the carrier, accurately predicted flows, a long-term contract supplemented by short-term agreements and, in the case of a beneficial owner of the cargo (BCO), a direct relationship with the carrier as opposed to the use of a forwarding intermediary.

The rise of transpacific premiums

By far the most important price differentiator in today’s market is the premium paid to ensure that a cargo is loaded onto a ship.

It’s the biggest change since last year and the biggest differentiator of the transpacific from the rest of the world. Premiums are also charged on the Asia-Europe trade route, but not to the extent seen in the trans-Pacific area.

Xeneta estimate of MSC short-term rates in $ / FEU including and excluding premium (Graphic: Xeneta)

“Shipping guarantees aren’t a new phenomenon, but the amount you had to pay to secure a place on a ship was $ 100,” Devetak said. “Now when we look at CMA CGM or Matson or ONE, we see bonuses in the range of $ 2,500 or even more. If you look back to May, the premium you were seeing from MSC was less than $ 2,000. Now, MSC charges almost $ 4,000.

Carrier preferences for certain customers come into play when invoicing premiums, which means it also creates a more uneven playing field for importers.

According to Devetak, “The most attractive customers see both the prices [the basic rate and the rate plus premium]. But many customers who are less attractive to carriers – small freight forwarders, small BCOs – only have visibility on the tariff with the additional cost. Much of the market, at this point, has no availability of the non-premium offering. ”

In other words, for many US importers, it’s either about paying the highest rate, including the premium, or finding another carrier.

Same customer, same carrier, same contract … different price

Highlighting how much the trans-Pacific has changed in recent months, Xeneta provided a specific case of prices paid by a freight forwarder over time. The payments were all made under the same contract to the same carrier.

Between April and early July, prices were clustered in the $ 4,000 to $ 6,000 range per FIRE. By mid-July, the spread had widened and ranged from $ 4,000 to $ 8,000. By early August, it had risen considerably, with prices below $ 6,000 and others reaching $ 18,000.

Pricing for the same forwarder with the same carrier under the same contract over time in $ / FEU (Graphic: Xeneta)

“We saw a market in the trans-Pacific in early April. But now we clearly see a market that has fragmented, ”said Devetak.

“If you add all that up, you can conclude that if the origin is China, the destination is Canada, you are an attractive customer, you go straight with the carrier and you ship next month, you end up paying 5,000. $. [in the short-term market].

“But if your origin is not China, your destination is Los Angeles, you are not an attractive customer, you go through a freight forwarder and you have to ship as fast as possible, then all of a sudden your tariff is $ 20,000.

“To put that $ 15,000 price differential into context, last year it was $ 500.”

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