Higher Ocean Carrier Rates/Unreliable Service Will Challenge

May 5th, 2010 - by joec

Last year, ocean freight rates increased dramatically as ocean carriers tried to recover from devastating profit loss.   As carriers reduced capacity by taking vessels out of service, space on existing vessels became very limited.  As a result, shippers had to pay rates higher than contracted to move cargo.  Ocean freight contracts signed in 2009 essentially became worthless.

Market indicators predict that ocean freight rates will continue to rise in 2010.  While capacity is expected to increase slightly, carriers will add capacity only if they see sustained market growth.  Equipment shortages will also challenge shippers, especially those located in Midland America.  That’s because carriers continue to find it more economical to return empty containers to Asia and pick up new cargo rather than allowing those containers to move inland.

In addition to higher rates, carrier on-time performance created problems for shippers in 2009 with on-time delivery reported at a dismal 55%!  Most delays can be explained by service changes and slow steaming as carriers looked to conserve fuel. Continued poor on-time carrier performance may lead to increased inventory or stock outs as variability in delivery increases over the year.

So, for 2010, how will shippers react?  Will they sign long-term contracts or just extend current contracts until the market stabilizes?  Will carriers, again, continue to increase rates or will competitive forces stabilize rates?  My bet is rates will rise and 2010 will again be a year of challenge.

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