All eyes will be on the next round of rate negotiations set for November. How successful the negotiations will be for carriers will depend on how they define ‘success’.
We asked the social media community regarding the upcoming November rate negotiations if alliances will enter into a price war to keep their positions. A large percentage, 77%, do indeed expect a price ware while 20% said no and 10% were unsure.
According to Bill Stankiewicz, Regional Vice President at K&S Kinard, a price war is already underway between drayage providers at many US ports while Arjit Saran, a supply chain specialist, notes, “With the current macro trends and market outlook, I foresee an aggressive rate competition…at the cost of profitability to gain larger market shares.”
The survey results and commentary are certainly not surprising given previous records of many carriers; however, while shippers and forwarders may benefit in the short term from price wars, it also means that the carriers’ financial pain will only likely continue. In fact, the results from our previous survey, When Will Ocean Freight Rates Return to Profitability, anticipate four to nine years for many carriers to return to profitability.
Is There a Light at the End of the Tunnel?
Ocean freight demand has been rocky at best this year as many companies work off high inventory levels and peak season expectations remain muted at best.
Meanwhile, carriers are having some success by removing some capacity from the market. According to Peter Sand, Chief Shipping Analyst at Baltic and International Maritime Council (BIMCO), growth of market fleets are expected to slow to 3.4% this year, a record, compared to 8.1% growth in 2015.
Xeneta CEO Optimistic | Prices on An Upward Trend
There does seem to be a bit of optimism in the overall ocean freight rates though. Our CEO, Patrik Berglund recently told the Journal of Commerce, “There is a clear upward trend in freight rates this year and it looks like there is a very nice build up in rate level. The GRIs are not always successful but they are still able to lift the market. If they manage to continue this until December, the carriers have a realistic chance of getting the rates to a level by Chinese New Year that is more sustainable.” How this will translate to carriers’ bottom line for 2017 remains to be seen. Let’s hope demand will also match the anticipated sustainable rates.
Continue the Conversation….
Do you think there will be competition among the alliances to maintain their market shares during the November rate negotiations? Click to continue the conversation on LinkedIn.
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