U.S. shippers are hesitating to sign long-term ocean shipping contracts as the Iran war continues to cast uncertainty over global shipping patterns, according to Xeneta Chief Analyst Peter Sand.
Shippers want to avoid the risk of locking higher rates over the next year, Sand said in a press release. However, large shippers may be tempted to sign new long-term contracts as carriers offer discounts to secure volumes for the following 12 months.
As shippers delay contract talks, more containers are expected to move on the spot market, Sand said, while carriers are charging a premium on these lanes. Still, shippers are open to the short-term pain of paying more now if that means they can secure lower long-term rates in the coming weeks.
Spot market rates are up despite a low demand stretch, according to a May 12 update from Freightos. To support higher spot rates amid low demand, carriers plan to increase blank sailings and rolling of some containers mid-month.
“Average spot rates from Far East to US West Coast remain up more than 50% compared to pre-conflict at the end of February, but have remained effectively flat over the past month,” Sand said.
The National Retail Federation and Hackett Associates also reported that June U.S ocean import volumes are projected to be 2% lower than May but increase 4% month over month in July.
“With inflation rising and consumer confidence falling among global economic uncertainty driven by the conflict in Iran, the overall trend of lower imports is expected to continue after that,” NRF VP for Supply Chain and Customs Policy Jonathan Gold said.
Once long-term contracts are made final and go into effect, volumes are expected to shift back to contracted rates and soften the short term market, Xeneta’s Sand said.
“This will be gradual softening rather than a dramatic fall off a cliff edge back to pre-conflict levels, particularly ahead of the traditional peak season build-up later in the summer,” Sand added.
Despite market uncertainty, some shippers have expressed confidence in their freight contracts. For example, Bob’s Discount Furniture said it has consistent volumes that benefit its carrier partners and is in process of finalizing contract negotiations with ocean freight carriers.
Dollar Tree also said it had secured multi-year inbound and outbound freight contracts to improve cost predictability and service reliability, Chief Supply Chain Officer Roxanne Weng told Supply Chain Dive. The agreements cover about three quarters of the retailer’s freight volumes and help reduce exposure to the spot market, Weng said.
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