2/ The arguments of the shipping companies
Management of shipping capacity will be adaptable and agile in response to changes in demand, with large numbers of ships sent for demolition and retrofits for ships which fall short of environmental standards to compensate for the arrival in service of large numbers of new ships.
- Quality of service commitments
Firm commitments on long-term cargo volumes from big shippers will enable the shipping companies to improve their overall quality of service.
The shipping companies could be more ready to accept a renegotiation of long-term contracts than they were last year, offering lower rates for greater cargo volumes.
- Simplification of procedures and flow management
Digitalisation and data exchange via application programming interfaces (APIs) are a way of strengthening relations between clients and suppliers.
The shipping companies will continue to develop complementary services covering such areas as land transport, customs procedures, insurance, warehousing and air freight, arguing that this enables them to offer an improvement in overall quality of service.
In the face of current global uncertainties, the fact that shippers can entrust their goods to shipping companies which now find themselves in a stronger financial situation gives them a significantly greater level of security. The collapse of Hanjin in 2016 was a spectacular illustration of the operating risks which can be posed by service providers with financial problems.
3/ The arguments of the shippers and forwarders
Thanks to the slowdown in economic activity, the balance of power is less one-sided than it was in the last contract negotiating season. Shipping companies are paying more attention to what their clients are saying. The shipping companies have dropped their "take it or leave it" attitude and are ready to negotiate again.
- A more attractive spot market, with rates closer to contract rates
This may encourage shippers to offload a larger proportion of their contracted volumes if shipping companies are not pro-active. In the current climate, this option, which is offered by the market, is relatively little used.
Big customers can demand that containers be made available, with penalties for the shipping companies if they are not.
- Respect for delivery times
Longer transit times have strongly contributed to the disorganisation of supply chains. Clients will be able seek minimum transit times as they negotiate their new contracts.
- A joint effort on "greening"
Sustainable development and the energy transition are just as important for shippers as they are for the shipping companies. It is in the interest of the two parties to agree on joint indicators, notably regarding CO2 emissions. The cost of setting up these indicators could be included in contract negotiations.
In this area, too, the parties involved in the shipping chain are in the same boat. It may require heavy investment but inter-connection between systems is necessary if maximum efficiency is to be achieved. It is in the interests of the shippers and the shipping companies, therefore, to work together on these questions to avoid investing heavily in digitalised systems which meet the needs of only one of the parties.
The slightly less favourable position of the shipping companies could enable the shippers to use the negotiations to seek more favourable payments deadlines.
Parties able to pay in US dollars will have a stronger negotiating position. This is a very favourable argument for the big international freight forwarders.
4/ Our first 2023 rates forecasts
As we have seen, we are today seeing a general resetting of the balance of power between clients and their suppliers by comparison with last year. We should nevertheless be careful - shipping capacity remains in the control of the shipping companies.
The wide-ranging cancellation of port calls expected at the end of the year for ships leaving Asia should slow the steady erosion of spot rates. At the same time, rates in the transatlantic trades will stay at exceptional levels for vessels departing from the Mediterranean and North Europe.
It is risky, therefore, to bank on a real reversal of the rates trend. A soft landing, therefore, seems to us to be the most appropriate hypothesis.
Here are our estimates of the target contract rates we are expecting in 2023 on the main routes on a port-to-port basis for a 40' HCD container transporting dry, non-dangerous goods.
- Chronically under-valued trades
Let us start in the bargain basement, which is to say with those routes which are under-valued, with rates which have been little affected by the pandemic, and which are chronically short of full containers. They are in direct competition, therefore, with the repositioning of empty containers.
- Transatlantic Eastbound: USD 800-1,200
- Transpacific Westbound: USD 800-1,200
- Europe/Asia: USD 500-800
On these routes, the shipping companies are breaking even on their operations, or even below.
- Trades which have gained in value because of the pandemic and which are now stabilising
This is the position on the majority of North-South routes (mainly Europe/Africa and Europe/Latin America), with the pivot-point for rates around USD 2,500.
- Trades which are seeing rates fall after they soared in the "post-Covid" period
These are the leading trade corridors like Asia/Europe and Asia/US West Coast, where we estimate that target contract rates are currently around USD 5,000 and USD 4,000.
- Trades in which rates are increasing
The prize here goes to the westbound transatlantic services, which have suffered no rate erosion in the second half of 2022 and expect to maintain their performance in 2023. Rates here are expected to be around USD 6,000.
The East Med/North and West Europe trade is also experiencing strong growth, mainly in response to demand from Turkey, with rates around USD 3,000.
Finally, the IPBS (India, Pakistan, Bangladesh and Sri Lanka)-North Europe trade is also showing growth, with rates expected to be about USD 4,000.
NB: These rough figures are averages. They need to be treated with caution at this stage and can only be envisaged where cargo volumes are at high levels and regular. They can, on the other hand, be used as reasonable starting points for preliminary budget estimates for 2023 tenders for dry, non-dangerous goods, as part of an approach which will, of course, need to be refined in the course of the year.