French container shipping line CMA CGM has taken the rare step of freezing spot market prices for moving goods, as disruption to supply chains sends freight costs soaring and alarms customers.
The world’s third-largest container carrier said spot market rates for customers shipping cargo would be held at current levels for five months even though the group expects prices to climb in the coming months.
In a sign of the spiralling expense of moving freight by sea, it now costs more than $20,000 to ship a standard 40-foot container from China to the east coast of the US, up from less than $3,000 two years ago, according to Freightos, a pricing agency.
Volatile swings in consumer demand during lockdowns have thrown often finely tuned shipping schedules into disarray. The Suez Canal blockage, the closure of Chinese terminals and a shortage of staff at ports have also contributed to the rapid increase in the cost of shipping goods.
The picture has left container shipping companies under fire from disgruntled customers and attracted the attention of regulators alarmed at the more than fivefold increase in freight rates during the pandemic.
CMA CGM said that “the group is prioritising its long-term relationship with customers in the face of an unprecedented situation in the shipping industry”.
The move will reverberate across the industry, putting pressure on rivals such as Denmark’s Maersk and Italian-Swiss Mediterranean Shipping Company to follow suit. Germany’s Hapag-Lloyd said it had already capped its spot rates for some weeks but had not announced the decision publicly.
The move higher in rates marks a sharp contrast with much of the past decade when overcapacity gave customers far more bargaining power. However, even container shipping groups say they want a return to more normalised conditions, as relationships with their customers fray.
While each line has its own split between spot rates — which the CMA CGM announcement applies to — and long-term contracts, they have been encouraging customers to sign longer deals to lock in rates lower than the spot market but higher than pre-pandemic levels.
Lars Jensen, a container shipping analyst at Vespucci Maritime, said the decision by CMA CGM suggested they were favouring contractual customers and those it has stronger existing relationships with.
“This will consequently be an advantage for customers with such relationships and a disadvantage for — typically smaller — customers who might have a preference for shopping around,” he said.
The move does not necessarily preclude additional increases in surcharges, Jensen added, which have become a significant burden for importers and exporters but are typically excluded from freight rate benchmarks.
Source: Economy - ft.com
