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Logistics Executive Briefing
Maritime Financial Research

Transpacific tenders in the era of carrier pricing power and disrupted capacity

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Increasingly, exporters and importers trading across the Transpacific have realised that the structural shift in ocean business and the behaviour of carriers will impact 2021 tenders. But to what degree?

Trouble securing space on ships, rejected bookings, cancelled sailings, equipment shortage, volatile shipping volumes, soaring spot rates… are no longer isolated cases.

 

Are the numerous operational transportation difficulties experienced day-to-day, over the last 6 months, by logistics staff at Beneficial Cargo Owners caused only by short-term cyclical factors such as COVID-19 and the replenishment of inventory, or will these conditions last much longer as part of a more structural and permanent change?

 

Increasingly, exporters and importers believe that the structural view is the correct one and are preparing to adjust their capacity management and bid strategies before their new contracts start in 2021, with less pricing power on the BCO side than in previous years.

 

Key numbers on Asia-to-North America:

  • Average carrier load factors: 106% (avg April-Oct)
  • Capacity shares of 3 alliances (Asia-WCNA): 83%
  • Current spot-contract rate differential: about 180%
  • Increase in SHA-LAX spot rate (Nov 20 vs Nov 19): +155%
  • Increase in cancelled sailings (avg April-Oct 2020 vs 2019): +117%

Sources: Drewry Benchmarking Club; Drewry Cancelled Sailings Weekly; World Container Index; Drewry Container Forecaster

 

The carrier industry has matured and evolved from about 20 major and niche ocean transpacific carriers a decade ago to a much more concentrated carrier sector of 10 carrier groups, who are themselves grouped into 3 operational alliances.

Figure 1: Asia-WCNA headhaul effective capacity market shares, Jul 20

Figure 1: Asia-WCNA headhaul effective capacity market shares, Jul 20

When preparing 2021 tenders as an outsourced bid management provider or when advising companies on their carrier management processes, Drewry will be focusing on a number of new parameters and priorities, including:

  • The expectation that cancelled sailings will continue in the transpacific market in 2022 (see related briefing below)
  • Revised contract clauses, performance monitoring processes and mechanics on capacity allocation to ensure sufficient capacity
  • Tools or reporting processes to enable the BCO to monitor carrier service levels and manage carriers more closely

 

There is also the unavoidable question of: how much more costly will transpacific container shipping be in 2021?

 

In September, Drewry warned that, with Asia-US West Coast spot rates currently at $4,000 vs 2020 contract rates typically closer to $1,400-1,500, it is possible that ocean carriers will set their 2021 contract rates at $2,000 or $2,500 or even $3,000 per 40ft container in the next tenders’ season.

 

 

Webinar invitation

Transpacific Trouble - How BCOs can counter carrier pricing power as they prepare 2021 tenders

 

Drewry and Chainalytics invite you to a free webinar briefing to help BCOs prepare for what promises to be an especially volatile transpacific shipping season. In this practical session we will brief attendees on what market developments to expect in the 2021 ocean transportation sector and how best to prepare for and counter the unique demands this season will bring.

 

The Webinar will be presented by Philip Damas, head of Drewry Supply Chain Advisors, and John Westwood, Sr Manager, Chainalytics' transportation practice and will take place at 1100 US EST / 1600 UK GMT on Wednesday, 18 November and again at 1200 Singapore time on Thursday, 19 November.

 

The Webinar will provide insights and guidance into:

  • The transpacific market in 2021 - carrier pricing power, capacity shortages and rate increases
  • Sourcing best practices for 2021 - diversification/concentration, clauses, optimisation, sailing schedule reliability, dwell times in port
  • Solutions to mitigate risks and adapt to a "seller’s market" in 2021

To sign-up to this webinar, click the link over your preferred time/date above.

 

 

Contact

Philip Damas

Philip Damas

Director, Head of Drewry Supply Chain Advisors

Industry at a glance

World Container Index

East-West composite ($/40ft)

Bunker Prices

Rotterdam ($/tonne)

Global Port Throughput

Jan 2012 = 100

Idle Capacity

('000 teu)