U.S. retailers' ocean shipping price woes ending as new delays threaten (updated)
27/02/2023 19:32
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By Lisa Baertlein
LONG BEACH, Calif., Feb 27 (Reuters) - Collapsing ocean
shipping rates are not all good news for U.S. retailers, who
paid as much as $20,000 to move a container of goods during the
worst pandemic disruptions, as they now are bracing for delays
due to plummeting demand.
Carriers like MSC and Maersk MAERSKb.CO are trying to prop
up prices by cancelling voyages and that could spark a new round
of cargo delays as containers get bumped from one ship to the
next, experts said ahead of a major U.S. ocean shipping
conference in Long Beach, California, this week.
The event, called TPM23, marks the unofficial kickoff of the
container shipping contract negotiating season when carriers and
their U.S. customers ranging from Walmart Inc WMT.N to mom and
pop merchants and exporters of all stripes hammer out annual
price and volume agreements.
Those closely watched, and often contentious, negotiations
matter because the Asia-U.S. trade lane is the most lucrative
for carriers, and those contracts set the tone for talks in
other regions.
Any shipper savings gleaned from those deals could come with
a new headache though - late deliveries.
The Port of Los Angeles reported 17 canceled voyages in
January and warned of more to come.
"If (carriers) keep bumping containers, we could end up
missing Christmas," said Isaac Larian, chief executive of
Southern California toy maker MGA Entertainment.
MGA's team has already switched around 75% of shipments of
products like Rainbow High and L.O.L. Surprise! dolls to the
short-term spot market from the long-term contract market. The
company is paying around $1,150 per container - a cost savings
of more than $18,000 from peak, Larian said.
Volatile spot rates were the first to plummet when
pandemic-weary consumers shifted spending from goods to travel
and entertainment. Now the gap between spot and contract rates
is closing, pressured by the threat of recession and competition
to fill ships, said Peter Sand, chief analyst at air and ocean
freight rate benchmarking platform Xeneta.
SHIPPERS' REVENGE
When demand was booming, carriers raked in record profits by
focusing on the most lucrative cargo. Critical customers had to
jostle for space and the likes of Walmart, Costco Wholesale Corp
COST.O and Dollar Tree Inc DLTR.O chartered ships to keep
shelves stocked.
But the tables have turned, and shippers want payback for
ocean cargo costs that quadrupled in some cases.
It is "shippers' revenge," said Jon Monroe, an industry
consultant and North American representative of Singapore-based
Transfar Shipping, whose investors include China e-commerce
giant Alibaba 9988.HK .
"There was a time when everybody looked for a win-win. COVID
threw that right off the tracks," he said.
Previously loyal customers are aggressively comparison-
shopping, spreading their business around and gambling on the
spot market, experts said.
The nonbinding nature of ocean contracts drives customers or
carriers to push for everything they can get when leverage
swings their way, said Lawrence Burns, a consultant who formerly
handled negotiations for Hyundai Merchant Marine.
This time around, importer and exporter shipping managers,
whose costs exploded when they were unexpectedly forced into the
sky-high spot market, have the upper hand.
"They've been called into the CEO's office too many times in
the last two years. They're coming back for blood," Burns said.
Customers and carriers do not often discuss contract talks,
but in recent earnings calls officials for Walmart - the No. 1
U.S. container shipper - furniture retailer La-Z-Boy LZB.N ,
toy maker Mattel Inc MAT.O and musical instrument seller
Yamaha said they expected to benefit from lower rates.
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(Reporting by Lisa Baertlein in Long Beach, Calif.
Editing by Ben Klayman and Matthew Lewis)
((lisa.baertlein@thomsonreuters.com; +1 310-491-7241; Reuters
Messaging: lisa.baertlein.thomsonreuters.com@reuters.net))