The Ocean Rates Storm

Posted on: August 13, 2021

The past year in ocean shipping has seen unimaginable changes in the rate market. But what happens next?

There simply are no words to describe how high rates are today or to express the shock and awe that we all feel when we see these numbers. Keeping up with these changes in the upward swirl of rate increases while fighting every day to get space has been an enormous task for the front lines in Customer Service, Pricing, and Sales and everyone expects that this market will continue for some time.

At the same time, it would be prudent to begin planning for what happens when this market shifts over. Eventually, there will be a combination of new vessels, new equipment, and a shift in consumer spending to a more balanced position between services and products and we will see a shift back to normal.

We should not assume that the transition back to normal will be smooth sailing. The rate wars of the past were difficult but may pale in comparison. The average rate transition in the past rate wars has been around a $1000 with rates from Asian Base Ports to the US West Coast moving from around $2,000 / 40 to lows around $1000 / 40’. The market transitions were in increments of between $100 – $150 / 40.

The upcoming transition will be vastly larger with rate adjustment spread ranging between $15,000 – $20,000/40. And the market changes will most likely be in increments of $1000 – $1500 / 40. Remember, markets move in increments, like a set of stairs with drops and then short plateaus, as the market adjusts to the initial change, followed by another drop.

Customer movement from one carrier to another, or shifting between NVOCCs, is hard to predict. There will be many large forces at play at any one time. Logistics managers will be torn between trust in current vendors who saw them through the horrible market conditions we now face and pressure from their CEOs and CFOs to take advantage of these huge rate drops. This is not going to be a fun ride.

Rate Management technology will be essential in addressing this storm. The Pricing and Trade Management Teams will need more than spreadsheets to keep up with communicating the changes to the Sales Team and to the Customers. This will require a combination of both Buy Rate and Sell Rate Management to identify and react to the individual market changes and identifying which customers are impacted. Margin Reports and automated pricing adjustment triggers will give those who are prepared the tools to address a much broader market while keeping their customer base quickly and efficiently informed of market changes that benefit them. This will not be a market where guess work and slow but sure are good enough to retain customers.

This change is still well off in the future, although we may see some stormy rate weather depending on how virus-initiated lock downs play out over the coming months. This would be a good time to begin thinking about the other side of this market and laying the ground work in preparation for that market shift.

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