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Asia-US annual contract talks lag amid inland pressures

23.04.2018 8:14:16 PM

Annual service contract negotiations between US importers from Asia and ocean carriers are moving slower than in past cycles because many beneficial cargo owners (BCOs) are holding out for lower rates. Early progress reports suggest East Coast rates are under downward pressure because of overcapacity, while most BCOs see the cost of inland transportation increasing.

Ocean carriers, however, are generally maintaining the rates in their 2017-2018 West Coast contracts, where overcapacity is not an issue, according to interviews with five BCOs, five carriers, three non-vessel-operating common carriers (NVOCCs), two former carrier executives, and a consultant to BCOs. For the cycle from May 1, 2017, to April 30, 2018, contract rates to the West Coast had settled in the range of $1,200 to $1,300 per FEU to the West Coast and about $2,300 per FEU to the East Coast.

“Carriers are coming in with more conservative bids than last year,” a major retailer told JOC.com, noting that bunker fuel prices are lifting all-in rates, but overall rates are tracking flat from last year.

BCOs are seeking to limit their risk from port congestion, truck capacity shortages, and equipment dislocations, but they may be disappointed in these efforts. “There is no way to guarantee capacity,” an executive at a Southern California drayage firm said. “Capacity is tight now, and it will get extremely tight as we move forward.”

Inland capacity scramble

Carriers’ attempts to include $300 emergency truck fees are becoming a sticking point, a logistics manager for a fast food restaurant chain told JOC.com. “How do you measure how tight trucking capacity is?” the logistics manager asked. “I don’t want to give them a blank check” by allowing emergency truck fees. The US importer added requests for proposals when three carriers that are not part of its portfolio came back with competitive CY (port-to-port) rates but refused to take on door deliveries directly to the importer’s warehouse.

The capacity shortage is forcing drayage rates higher. “A dray that cost $600 last year is now going for $800 or even sometimes $900 to $950 in certain markets,” said Eddie Santucci, president of CURA Freight, a freight broker.

Steve Hughes, a consultant to importers in the automotive aftermarket, said rate hikes that reflect the increased cost of inland transportation in today’s tight trucking market are not surprising.

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