As many shippers/BCOs conclude their annual tender negotiations for new transpacific contracts commencing 1 May, it is becoming clear that contracts rates this year in the transpacific and Asia-Europe will give exporters and importers a cut in shipping cost of 55% to 85% in most cases, when compared with 2022 costs.
This is not a printing error – as shippers (and Drewry bid experts) involved in large ocean bids know. This is the largest year-on-year reduction in shipping costs for at least 7 years
Detailed data on the reductions by lane and by region is confidential, but shippers who wish to check whether they have obtained their share of the savings – or should aim for more – can get detailed cost analysis on this from Drewry on any global route.
We provide benchmark reports covering both US$ rates in absolute terms (for the same lanes and equipment type) and looking at the year-on-year percentage cost reduction obtained since last year. For those shippers still wrestling with long term positioning, for example in markets such as Transatlantic trade, or South America markets where rates have not yet reached pre-pandemic levels, the Drewry benchmarking support framework can also help with strategic decision marking.
This and next year, logistics leaders have a chance to make a big contribution to their company’s bottom line by reducing costs, at a time of difficult trading conditions.
When Drewry presented at Logistics Management Magazine’s popular, annual “Rate Outlook” webinar back in January, we said that contract rates this year would fall by at least 50% year-on-year, and shippers would also be able to secure better terms and conditions, on things like payment terms and liquidated damages.
With hindsight, we should have said “at least 60%”. Some of our shipper clients have saved between $10 million and $200 million in ocean freight costs.
The intense competition among carriers and NVOCCs in this year’s bid season has resulted in even larger reductions than 50% in some cases, and shippers have secured better terms and conditions, based on discussions with shippers.
BCOs in this latest bid season have set aggressive target rates – some as low as $1,200 per 40ft container from Asia to the US West Coast. It does not appear that carriers have agreed to such low rates.
In addition to securing much lower rates, shippers are receiving improved service this year. Transit times are twice as fast as a year ago – see chart – and port congestion at major ports has reduced by 50% (in North America) and 60% (in Europe).
Looking ahead, Drewry believes that it will become more important for shippers to understand the break-even cost of ocean carriers, for the purpose of setting realistic target rates and to anticipate whether rate levels will result in some carriers stopping services.
Is your company getting its share of the cost savings..?
Is your company getting favourable terms in its carrier contracts..?