Average spot rates by ocean carriers for a 40-foot container from Hong Kong to Los Angeles fell to $986 this week, down 51.6 percent from a year ago and the lowest level in a trans-Pacific downward pricing spiral.
The trans-Pacific spot rate is the rate charged by carriers for containers that are not booked under their annual contracts with large shippers. The rate applies to containers booked for passage at the last moment.
When cargo volume is strong and space is tight as it was for six years until last year, shippers have to pay whatever the carriers can charge to get their cargo aboard a ship, but when volume is weak, as it has been for the last nine months, some shippers bet that the rates will fall and wait until the last moment to take advantage of the spot rate.
Shippers aren’t guaranteed space, but in the current environment, they are almost guaranteed low rates.
The effect of those low rates can be seen in the financial losses reported by most major carriers for the quarter ended March 31.
As I have been saying, container carriers are not very smart when it comes to pricing.
The freight forwarders are playing the carriers (not the shippers, believe me).
The ocean carriers need to wake-up and start putting in some restrictions, same as airlines had to.
First of all, when a container is picked up for a booking, the shipper should be required to declare what rate it will be booked at, and what vessel it will load onto.
If they don't meet this as was agreed, they should have to pay a penalty.
Now, it would be possible to pick up a container, get it loaded and returned to a carrier in a day, but not a whole bunch of containers.
Anyway, that's my suggestion to the carriers.
They are going to need all the help they can over the next year, as the ink is bright red.