Friday, March 20, 2009

Ocean rates will not go up

Various CEO's of international container companies keep saying there is a need to "restore market discipline", meaning they need to quit cutting rates.

I think the term Market Discipline is an Oxymoron
An oxymoron is a figure of speech that combines two normally contradictory terms.

Janet Porter of Lloyds List wrote a very accurate blog post entitled "We Don't Care About Carriers".
That is what US shippers have to say about container lines as the two sides prepare to embark on their annual round of transpacific contract negotiations

She is referring to the recent meeting of 14 companies getting together to collude.

... the 14 TSA carrier CEOs expressed their intention to avoid any further erosion of existing rate structures that have been undercut by deteriorating demand and bids by carriers to fill gaping capacity.

What these guys don't understand is, you can't restore market discipline by saying "don't do that". You restore market discipline by getting the supply more closely matched with demand.

OPEC doesn't say to it's members "don't sell oil at less than new production cost", they get together and reduce supply.

So shippers, or consignees, you don't need to worry too much about the rates going up for some time. I have seen it happen too often - everyone gets together, agrees they will behave themselves, and it all falls apart as soon as there is no cargo.

Now, having said that, if you want the rock bottom rates, you will probably only get a short term contract. If you want a contract valid for 12 months, the rates will be less than last year, but not crazy cheap like they are now.

If I were negotiating a service contract for the next year, I would be looking more closely at the service part of the contract, making sure the space guarantee is sufficient. If the carriers do get their act together, and by some miracle cargo does pick up, space will be tight.

I doubt that will happen, but better to be safe than sorry.

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