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Maersk Line seeks to avoid Q2 slump in Transpacific spot rates
Published:2018-12-30   Have been here 61   Source:泓威国际物流

Maersk Line will seek to avoid a second quarter slump in Transpacific spot rates to help strengthen its hand ahead of adopting a revised negotiating strategy when annual contract talks open with shippers in 2019.

Most of Maersk’s Transpacific annual contracts with shippers run from 1 May, the rest from 1 June.

According to Christian Pedersen, vice president and head of trade and marketing for North America, avoiding the contracting mistakes of 2018-19, which were agreed against a backdrop of year-low spot rates in Q2 2018, will be uppermost in the minds of many liner executives when negotiations with shippers over 2019-20 contracts open next year.

“I think the biggest challenge we faced in the first half of 2018 was, we didn't address the usual seasonality well,” he told Lloyd’s Loading List.

“We were actually quite confident about the demand forecast, but after Chinese New Year we didn't make a lot of adjustments to our cost base to factor in the usual seasonality because we were confident in the overall year.”

The upshot was bottom-feeding spot rates on eastbound Transpacific services which shippers understandably leveraged to win concessions from lines. This resulted in a “very, very disappointing contracting season” for Maersk and, Pedersen argued, also for shippers once the peak summer season kicked in and carriers were forced to cut service levels even as volumes reached record levels.

“We thought demand would be strong,” he said. “We knew costs were going up, because of the bunker price as well as truck and rail cost increases converting into at least a $200 per unit cost increase. You face cost pressure from terminals, cost pressure from rail providers, and cost pressure from truck providers.

“Despite that, we actually saw customers really aggressively chasing rate reductions, and for a good part, actually got them.

“So, you had a complete misreading, or a different reading, of the market between the shippers and the carriers in that contracting season. And in my book, it ended up on a very disappointing basis for all.

“It meant you saw that a month after the ink was dry on their contracts, all alliances started making adjustments. You saw a recalibration of the market mid-year, where each alliance adjusted to the outcome of the contracts. For the most part, that meant some service cuts - either downsizing or closures.”

Pedersen hopes in forthcoming negotiations that shippers will understand that there must be a calibration of service and contract value to avoid the disruptions of last year.

“For next year's contracting season, we want to offer customers different allocation solutions and make it very clear to the customer, depending on which package you take, there's a different risk profile, and there will be consequences if the market changes later on,” he said.

“Last year, some wanted a price reduction in the period when the costs were going up and just before the peak season. This year we want to offer our customers multiple options at different price points. As Maersk, we have the scale to offer our customers flexible allocations at a certain price point, but if customer wants the lowest price, then our proposition to you is different. That means that there's no flexibility in your allocation, but we can offer you additional space via Nyshex or at an upsell rate.

“If you don't use your slot allocation, we release it to another customer. Should you come back and need more later on, then we have a different discussion. A lot of customers were surprised about that last year.”

The unique nature of the second half of 2018 on the eastbound Transpacific trades will make realizing Maersk’s strategy in 2019 more difficult, Pedersen acknowledged.

He said that even though the increase in US tariffs on many Chinese exports from 10% to 25% due to be implemented on January 1 had been stayed for 90 days, large amounts of cargo had already been front-loaded ahead of January. So, while a small bump in demand ahead of factory closures for Chinese New Year starting 5 February might give the market out of China a lift in January, the 2019 post-CNY seasonal slump could be pronounced.

“What we are expecting in January is that we'll see almost the normal pre-Chinese New Year volume and it is going to be a couple weeks earlier than last year,” he said. “Most of our customers are saying that, for January, they expect normal volumes.”

“Where we do see the majority of the drop in demand next year is from the week after Chinese New Year into quarter two, and then the duration is going to be the question.”

He said part of the drop would be seasonal, but also US inventories had been front-loaded which would enhance the usual lull.


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