Global shipper Toll Group is urging Australian businesses to lock in fixed rates and space on container ships now as world events continue to cause havoc with international freight. But businesses with small volumes face a greater battle in persuading carriers or freight providers to commit to a contract rate, Toll said.
Establishing and honouring agreements with freight providers is the safest way to ensure containers get on to ships, Tom Holyman, GM Ocean Freight ANZ, Toll Group, told an Australian Industry Group (Ai) webinar titled ‘World Freight and Logistics – the impacts on your business.’
| "Businesses with small volumes
face an even greater battle":
“That means you’ve entered into a contract with fixed rates and generally with fixed-space commitments,” Holyman said. “The contract binds the carrier or your freight provider into delivering on that. Those who abandon contracts now are setting a precedence for carriers to abandon the contract later in the year when the importers and exporters most need their space in the peak season.
“We would urge companies to not think where today’s spot market is – which is a temporary and seasonal aberration and related to the Covid-19 situation in China – but to think about where you were in October and November last year, screaming for space and a commitment to uplift the container.
“By the time we reach July, there will be almost no chance to lock into contract pricing. Even if you were to try, the conditions will likely be unfavourable. Honouring that named account contract that you’ve entered into is the surest way to ensure your booked container gets on a ship.”
However, he said it’s still not a cast-iron guarantee, with issues such as Covid-19 or port congestion leading carriers and freight providers to declare force majeure.
Holyman said businesses with small volumes face an even greater battle in persuading carriers or freight providers to commit to a contract rate. “For those who do have that volume, we would urge you to lock into contract pricing, even though the spot market may offer some favourable pricing at the moment.”
Australian businesses and logistics are being impacted by numerous factors including ongoing Covid-19 issues in China, conflict in Ukraine and relentless global demand for products, according to a report of the webinar by Ai’s Wendy Larter.
Impact of Covid-19 lockdowns in China
“The recent Covid-19 outbreaks in China have reset the whole global supply chain back to where it was at the middle of last year,” said the report. “The biggest disruptions regarding supply and logistics are occurring in and around Shanghai.”
Holyman said: “The lockdowns in Shanghai have meant that manufacturing is not occurring and the ability of manufacturers to deliver their goods to port and have them exported is severely curtailed. Goods are being redirected to other ports, including nearby Ningbo, China’s second-largest port.
“The problem is that everyone had the same idea and as the goods were redirected away from Shanghai towards Ningbo, that port has become congested to the point where many of the Ningbo facilities are refusing to receive any new cargo because they are trying to get rid of the backlog. So, the whole Shanghai-Ningbo region is congested."
Notwithstanding embargoes, the impact of this conflict on international freight is fairly localised and revolves around vessels not being able to enter the Black Sea to service Ukraine and Russian ports, Ai said. “It is not until the start of next year that oil prices are expected to rise.”
Shipping prices are currently more than four times higher than they were before the start of the pandemic. A 40ft container now costs just under $8000, with prices expected to increase in coming weeks to about $10,000. In contrast, rates were below $2000 at the start of 2020.
The higher rates will become permanent, Holyman warned. “Don’t imagine that pricing for ocean freight will return to the sorts of levels that we saw in 2019 pre-Covid.
“Container ocean freight is very much a pure supply and demand business. At the moment, we’re seeing an imbalance, which is largely on the supply side. I don’t see the supply side recovering for another 12 months and therefore I don’t see supply-demand rebalancing for another 12 months. This means it will take that long to see a return to more reasonable pricing.
“We’re now one quarter and a month into the new calendar year and certainly on the Australian New Zealand (ANZ) trades, particularly those out of the big supply areas — Asia, in particular, but also out of North America and Europe — the container ocean business is still significantly disrupted operationally.”