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[On Demand Webinar] May'22 | How to Navigate Current Market Disruptions to Prepare for Supplier Negotiations

Be proactive in securing competitive contracts amidst global disruptions in the ocean freight market.

The ongoing lockdown in Shanghai continues to create major challenges, regionally and overseas, as we see a sharp increase in delivery delays and carriers removing regular departures from Asia – Europe. Additionally, without any signs of relief on US port congestion, one can expect short- and long-term ocean freight rates to remain at high levels.

Learn how these recent events are impacting the ocean freight market and potentially, future negotiations with your suppliers in the latest state of the market ocean freight webinar with Peter Sand, Chief Analyst at Xeneta, and Emily Stausbøll, Market Analyst at Xeneta.

Be Proactive In Securing Competitive Contracts Amidst Global Disruptions In The Ocean Freight Market

Webinar Highlights

  • How to successfully navigate supplier negotiations in the current market?
  • Chinese official statements vs. what the ocean freight market data shows 
  • The impact on short- and long-term freight rates from US port congestion 
  • Schedule reliability and capacity challenges for major corridors 
  • How to make data-driven decisions when tendering?
  • Q/A

Download Slides

Webinar Content and Transcript

Where are we now?  07:05

Distribution of Long-term Contracts 17:11
Xeneta Platform
  • US West Coast - Far East Main (Reefer) - 22:05
  • China Main - US West Coast (Standard) - 29:20
  • North EU - US East Coast (Standard) - 32:55
  • Delta between short and long-term freight rates - 34:55
  • Global Schedule Reliability - 37:17
  • Global Capacity - 42:03
  • Chinese Lockdown - 51:53
  • Congestion on US Coast - 54:40
  • Top of Mind Tips for May 2022 - 56:20

Courtney Sherwin,​ Sr. Demand Generation Manager​, Xeneta: Hi everyone. And welcome to May, 2022 state of the market ocean webinar. We are here today to talk about how to navigate current market disruptions, to prepare for your supplier negotiations. We'll talk about Chinese lockdown. We'll talk about the U S port congestion capacity challenges, schedule reliability, and all sorts of disruptions happening in the market in order for you to navigate those supplier negotiations.

 We'll get started with some introductions. My name is Courtney Sherwin. I am the senior demand generation manager at Xeneta and my job today is to make sure that you have a smooth and easy experience during this 60 minute webinar.

I'm joined with two of my colleagues, the two hosts for today. We'll start with Emily, the market analyst at Xeneta. Welcome Emily, happy to have you, please give our visitors a quick introduction of yourself.

[00:00:54] Emily Stausbøll, Market Analyst, Xeneta: Thanks Courtney. Thanks for having me back. I've been at the shipping industry for four years now. Just [00:01:00] a little bit over four years. More recently here at Xeneta and looking forward to share some insights on that on container shipping and all the good stuff and worrying stuff out there.

[00:01:10] Courtney Sherwin,​ Sr. Demand Generation Manager​, Xeneta: Awesome. Also joined us today is our host Peter sand. The chief analyst at Xeneta .Welcome back, Peter. Please also give a quick introduction to our visitors.

[00:01:20] Peter Sand, Chief Analyst, Xeneta: Thank you Courtney and welcome to every one of you. And I'm pleased as well to be a part of the starting lineup here for today's webinar scratching, not only the surface, but also trying to go deeper as we always do in the state of market ocean webinar and joined today by our very own Emily I'm in the best possible company.

And I can expect only the best from today's webinar and also with you guys out there contributing with great and insightful questions as we go along, Emily will have a keen eye on those and bringing it into our [00:02:00] conversation and dialogue as we go through it. I'm an economist by training. So forgive me if I go into finer details on the economy that that you may not necessarily just hook up to direct.

In the end, hopefully I should bring also the punchline around why this is relevant for you. When you prepare for negotiating with your suppliers going forward. Intelligence of the market, as always is essential. Back to you Courtney.

[00:02:29] Courtney Sherwin,​ Sr. Demand Generation Manager​, Xeneta: Great. Thank you, Peter. Thank you Emily. So some housekeeping items for our viewers today.

This is a 60 minute webinar, and I just want to say, thank you. Thank you for being here. We know that this is a long time to ask of you to stay and be online with us. So it's much appreciated. And since you're here online, definitely take advantage of, as Peter mentioned to ask questions, Emily, we'll keep an eye on the question panel to the right of your screen and you can send them in as we move along.

Last thing, if you do need to jump off, not to worry, we will send the recording tomorrow that you can revisit on your own time. All right. So let's take a look at the agenda for the next 60 minutes. We'll start with a very quick introduction of a Xeneta and more importantly, the data that we'll be analyzing today, where does it come from? What does it mean? What does it look like? We'll then go into where we are now, top of minds for May 2022. What you need to know what's happening on the market right now, we'll then go into this Xeneta platform, talking about the current market trends on the short term and the longterm market and monitoring some major corridors there.

 And lastly, we're going to give some tips and tricks on how to navigate this disruptive market and what to prepare for when you're having those supplier negotiations.

So starting off with Xeneta. In short Xeneta is the world's largest independent database for ocean and air freight rates. Today, we're just going to be talking about our ocean freight rates and on this [00:04:00] slide, the number one number that I want to take with you is that bottom left 10 million new rates per month.

Why this is significant is because we are collecting new for ocean freight rate contracts per month, putting them onto the platform, enabling us to have a real time transparency of what's happening on the market. So where does this data come from? This data is coming from community like you, visitors and viewers like you.

We had get majority of our data from our shipper customers, and that's a mounting over to 20 billion US dollars of purchasing power, mostly on the long-term market. This means anything with an ocean freight rate with the validity of 88 days or more. Additionally, we also collect data from our freight forwarding customers.

 These are our FAK and spot market rates. And lastly, we do not collect data from carriers. We do not collect data [00:05:00] from shipping lines. It's important to have all stakeholders on the Xeneta platform to enable this neutral transparency of what's happening on the market. So how does it work? In short, starting from the bottom here, we collect lots of Excel files, rate sheets, PDFs, any shape and form that we then cleanse, normalize and validate it.

 These three pieces are such a key part of the puzzle for Xeneta. We have an in-house team, freight management team that focus solely on cleansing, normalizing and validating those data rates. Ultimately, so we can deliver and have a conversations that we're having today to analyze the market high, the market low, and the market average. We'll do that today with some major corridors, but that's it from me from the Xeneta platform. If you have any questions about the data, please send them in and I'll keep an eye on them. Otherwise I'll pass the mike over to Emily and Peter.

[00:05:57] Peter Sand, Chief Analyst, Xeneta: Thanks Courtney. It's a [00:06:00] pleasure to sit on top of such a comprehensive database and being able to share not only something directly from our platform and the Xeneta app with you guys out there, but certainly also to put more words to it in order basically give you the power that you need when talking to your supplier, when talking to your carriers, when talking to your freight forwarders about the upcoming service requirements that you will have shipping your cargo around the world, as you can see here, of course, as mentioned 160,000 port pairs, I'm still counting.

So, there's plenty of things to look into. I will not go into 160,000 port pass today, but we have selected three exclusively good trends sharing that today. We have as always four essential bullet points to take away from the openings here. So getting to a stage of the next normal, I think it's fair to say that requires removal of many obstacles. I know that some of you have follow closely the reportings of Maersk that went out only a week or two ago. They talked about a normalizing market in the second half of 2022, just to be outspoken about this. I'm not really sure what they mean by having a normalized market in, the second half of 2022, at least by the standards that I operate in, try to convey the message here. It would still be anything but normal in the second half of 2022. And it's because. Keeps coming up more obstacles than, obstacles being removed.

And we can just mention some of the things that are on the dish in front of us today, of course, dock downs in, in Shanghai and greater area, China. And [00:08:00] of course also the labor negotiations ongoing now in San Francisco on the US west coast. So watch out for, all those those obstacles because there is also some sort of normalization around, at least if we go into some of the details of red rates and spot market rates at least some of them certainly seems to have peaked if we go on a main trade lane, like far east in to uh, Europe.

Whereas there are still some upside left to some extent, at least from the long-term contracts. And why is that? It is, of course, because everyone involved with shipping with logistics seek to inject more resilient ends of the supply chains. And one of the things that they seek from a long-term contract with their service provider with a freight forwarder or their carrier is of course, when you go into it to these long-term contract rates you, certainly should also [00:09:00] expect the highest possible service, you should expect not to get cargo rolled, you should expect at least the carriers and rainfall wants to do whatever they can in order to bring an expedite your cargo as fast as possible. We will go down to a two a how that is not happening right now, and why you as a shipper should expect a much higher service level from, your service providers then you get right now, when we deep dive into some of the reliability stats that we have from our partner and see intelligence. But as just put here in terms of the stakes that are rising in terms of COVID disruptions. In all fairness, Chinese authorities have lessons learned from previous lockdowns, but I think it's also fair to conclude from a shipping perspective, more lessons could be learned from abroad and from handling this in another way than, what is going on right [00:10:00] now, at least from a logistics perspective. I'm not questioning anything behind in terms of health policy of this.

 I'm just saying that the disruptive nature of these lockdowns are devastating to everyone involved in global shipping. But having said that you should expect more, I'm afraid

Spot rates , as alluded to just before on some main trade lanes also coming down and we are also. In some trade lanes that they are even falling below that of freight rates. And please allow me Emily to to pick your brain also on, on some of the the thinking that, you could apply as a shipper to a trade lane or market where you all of a sudden find yourself deeply into contract negotiations and you you start to see the spot market rates, dip below the current level of, contract freight rates. [00:11:00] How can you approach that? Emily, can you share your thoughts on, on, on some of those say the trends that the, that are developing right now in the market in terms of spot versus contract.

[00:11:14] Emily Stausbøll, Market Analyst, Xeneta: Yeah I think it's still it's quite a clear indication that you still have these issues in terms of securing your capacity and, being willing to, take that extra cost, to make sure that you have the space guaranteed that you need rather than risking it on the spot market which many have, been burned a little bit from, doing that over the past years of, these issues and they're, clearly many trades where, we're seeing this trend. I've particularly noticed the ones where the current long-term contracts, the average for long-term contract side in the past three months is actually higher than, the average of the spot market at any time.

So you're paying more than you would ever have been on the spot market. And again, it's just that question of, securing what you need for the next year and not being willing to, take that risk for the slight discount of, going on to the spot market. When [00:12:00] yes I think many don't expect the spot market to go higher up. You're not protecting yourself from higher rates in all likelihood. But you're protecting yourself in terms of guaranteeing that space in terms of the, phrase we've talked about very, often in the past couple of months and years now, this supply chain security and being willing to pay that little bit extra, just to make sure you've got the space.

And again you're, still comparing yourself to other shippers. And one thing to make sure that the carrier is choosing your box to put on the ship when, it comes to it and not being deprioritized, because somebody else's has got a higher rate or whatever the situation maybe.

[00:12:37] Peter Sand, Chief Analyst, Xeneta: All efforts, of course, to make sure that cargoes arrive when they are due for sales or to, for any special seasons. We are approaching fast, fortunately the traditional peak season of any year the third quarter before we know about it that we are there. But but before we get to that point, I [00:13:00] think there's, this one important hurdle that we also need to, cross. And and you should, of course, if you follow a Twitter or LinkedIn that you you may pick up on, on, some bulletins coming from either side of of the labor negotiations taking place right now, it's of course the Pacific Maritime Association sitting in in talks with the aisle at W U. And we were just looking at slogans- longshore victory, 2022. Victory or death was was another, perhaps a little dramatic tagline to where to, put you in. But I think in all essence, it frames very well what's at stake here. At one side of the table, I guess they just want higher salaries to be short.

They want job securities and they want more jobs at the opposite side of the table, they want [00:14:00] productivity they want efficiency being injected into the current operations, which they see lacking at large. And they see the solution. The answer to that automation that basically was agreed back in 2008 that the terminals could to some extent, start to introduce and the longshoremen have been compensated for that ever since.

Now seems as if they have taken a very different position, they do not want automation. And I think also those of you that follow this very closely - we do so, stay in touch, get our insights as well. But if you want to follow this to the very nitty gritty, check out some of the papers that that, that may be say coming out of of the, of the talks not least the report paid by the PMA only last week, [00:15:00] claiming that more jobs are generated from automization.

 I guess the ILW, you were not really singing the same song but but they may be just doing the introductory dance before they get down to to the final details of the contract rates. As we all know, the existing contract expires on first July. Let's see if the political leverage that the white house and the port envoy will surely put on the negotiators will be weighted difference having a white house, which is definitely labor friendly.

It's unlikely that we're going to see say premature involvement from from a political side of things. But for sure you should also expect a certain say pressure to be leveraged on this. As always, of course, you, as the shipper need to monitor, you need to analyze and you need to stay on top of this this situation and you can do so only to to the detail level that you need in the Senator app and speaking.

The contracts that we look at constantly Courtney mentioned in the opening of this webinar, that where a Senator is extremely strong on the insights to freight rates is in the long-term contract rates. And what I'm about to share with you here- it's definitely one way of of showing how global shippers managing the risks from the global strain supply chains.

On the left-hand side here, we have a standard FEU distribution and on the right hand side here, we have reefer distribution. And if I may bring you back in here Emily for, sharing a few more words to to the charts that we have in front of us here, what is it [00:17:00] that we could take away from this? What what do you see from, the numbers here, in which way do you see global shippers use the tool of long-term contract to manage the risk that they, see coming at them left, right?

[00:17:18] Emily Stausbøll, Market Analyst, Xeneta: I think you see it in, in, several ways, really, if we start by looking at the drug containers you, have got an increase of of, shippers signing up for three months contracts just because it is an uncertain situation.

And if you are in that uncertain lane, then maybe you accept this now and take what we see are slightly higher rates on the majority of these main trades for three months contracts while hoping that will give you some some benefits when it comes to the next round of contracts. And then you also see on the other end of the scale, more and more shippers signing up for these much longer contracts over 12 months reaching up towards two years, three years often index linked. So it's not a steady price that you're going to be putting for the next three years, but that will be adjusted also to take into account surcharges and, all those other mechanisms that come in, especially if you have it index linked so that you will hopefully be able to benefit once the market starts to fall which, we do expect.

I think last thing to mention it, this is covering the major trades, but it does also vary when you look into the individual trades. So for example, if you look on the west coast, while you also have this heightened uncertainty with the labor of negotiations and congestion, you'll actually see more, people going towards the three-months contracts and again, fewer on the 12 months and even longer contracts, which is not something we've seen to the same extent on the east coast, where there's a bit more certainty that actually they will still be able to move my container over the next 12 months. So you're a little bit less hesitant to sign up for those longer deals.

Then if you look over at the reefer market, and again, this is important to say this is only long-term contracts, so this is already only the contracts lasting three months or longer. There you've, got this much more settled market dynamic, which says thatthere are far more contracts being signed on 12 months.

And we've continued to see that even to a larger extent, nothing more longer than 12 months. That's not something that we've seen on this market, but clearly again, trying to secure those 12 months, especially in the reefer market where you've got more equipment availability issues and, making sure you have the equipment available and making sure that the carrier is choosing your container rather than somebody else's giving you that security and knowing what you're doing.

[00:19:30] Peter Sand, Chief Analyst, Xeneta: Yeah, for sure. I think this really means that the shippers are walking the talk they are using this risk management tool, very dynamic in the market. If we go back into a to, earlier years, we could definitely also see that 20 21 was standing out in, many ways. But, definitely there are things to read also from from this as as [00:20:00] Emily just explained in terms of how do you position yourself? How do you go into the spot market, go into the long-term contract market with all the boxes that you need to move in order to just strike the right balance and, get that service there that you need.

And then this year maybe slightly different from from, previous years, you may want to go more into long-term contracts. Perhaps even only a free month. You may also need to go into a 12 month long-term contract, even if you were a pure spot market player in in the past. But of course you, as a shipper also have a tall task talking to the freight forwarder and perhaps directly to the carrier. If you have a shipper of a certain size in order to get that contract just right, because without doubt, these negotiations will be tough. They will be very focused on the details. You will get pushback from the carriers also, especially when, you are trying to face them now with, market developments that may not necessarily be completely going in their favor and speaking of their favor, and basically also those rate trends I suggest that we jump right into the Xeneta platform.

In front of you and and continuing our discussion on the reefer trades because that's what you also find on the Xeneta platform. First up here we have decided to show you a, normal backhaul on the transpacific, but for reefers, it's not a back hole, it's a front hole and Emily, if if I can bring you back in here, you are, you're becoming the Reefer expert, at least on, on the state of market weapon today. Please tell us what should we take away from knowing these trends in the long-term contract market for reefers going westbound on the transpacific.

[00:22:05] Emily Stausbøll, Market Analyst, Xeneta: One of the really interesting things on this trade is, how many, what share of the contracts here are all 12 month contracts.

If we think back to the slide before it was just on the 90% of contracts that were long-term. Whereas on this particular trade, it is closer to 95%, both last year and this year, and the vast majority of those start on the 1st of April and run through to the end of March. And you can quite clearly see that when we're looking at the rate development, come, 1st of April, those that sudden jump up both last year and this year as all these new round of contracts come in and you can see that sudden increase where we were going from just under $4,000 per box to upwards of well, closer to 6,000.

And those are rates that are locked in for a year for the vast majority of these contracts, right? It's not something you can just disappear from this since this is what it is, and it's much higher than, what is happening on the spot market. But, that's, again, you're paying for having that capacity guaranteed from carriers and making sure you get the space. You have a, premium of around $3,000 compared to a dry box on the same trade.

But, for you as shippers is one of the big problems has been getting hold of those refund containers and being able to use them not, where instead of carriers moving them around in different ways, making sure that you, are guaranteed to have that books. And that's also why you're seeing these, really sudden sharp increases when all the majority of these new contracts come in and replace the old ones, which were clearly at a much, much lower level. And as you think, if you think of it as 12 months, it's going to take 12 months. We're going to be in the 1st of April, 2023, before we really see the next big, jump on this trade.

When then the following round of 12 month contracts come in regardless really of what happens on the spot market. You are, you have chosen this long-term contract and that's what you're, that's what you're going to be paying for 12 months...

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State of the Market - May 2022

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