U.S. importers, straining under a tapped-out supply chain, are increasingly offering top dollar for long-term shipping contracts that may not even be honored as they try whatever it takes
to guarantee the arrival of their products.
Importers are paying up to avoid a repeat of 2021
The pandemic-driven boom in demand for goods pushed both contract and spot rates for shipping to records — getting merchandise from place to place costs about 11 times more than it did before the Covid-19 outbreak. With demand so high and capacity limited, importers are paying up to avoid a repeat of 2021, when some contracts set at lower prices
weren’t honored, leaving customers without their stuff.
Importers are accepting higher contract rates because they “fear that the market can get even worse,” said Lars Jensen,chief executive officer of Copenhagen-based Vespucci Maritime, a shipping market-analysis firm. “Fear of losing out on capacity to some degree trumps fear of paying too much right now.”
Contracts are typically negotiated on a yearly basis with importers and carriers agreeing to a minimum capacity level between certain ports, and the spot market used for freight shipped outside of the agreed terms. But this year, importers are prepared to pay more, locking in
higher, pandemic-era prices for two or even three years — despite some predictions they won’t stay as elevated — in order to protect themselves from the volatile spot market.
The shipping chaos has completely changed how David Kunelius, president of Minnesota-based medical device company MedSource Labs, gets merchandise to the U.S. from Asia.
“Pre-pandemic, we would set up shipping contracts for an entire year,” paying about $4,000 per 40-foot container, which allowed for planned investment in research and development, Kunelius said. But starting last year, MedSource Labs was getting a new quote for cargo every two weeks, increasing by thousands of dollars each time to about $23,000 now.
Rates are unlikely to return where they were before the pandemic,
Rates are unlikely to return where they were before the pandemic, when carriers suffered from overcapacity and low profits for years, said Stephanie Loomis, vice president of international procurement at freight forwarder CargoTrans, Inc.
“It’s settling into the market now that the days of really very low, ridiculously cheap ocean rates are over,” she said, adding that prices are unlikely to stay at these levels for more than a couple of years and will likely settle a little lower.
Things could get harder to predict in the short term
And with supply-chain disruptions stemming from Russia’s invasion of Ukraine and China’s Covid Zero policy locking down major manufacturing regions in the Asian nation, things could get harder to predict in the short term.
All this while U.S. goods imports continue at records amid decades-high inflation rates.
