This fireside chat recap is from Day 3 of FreightWaves’ F3: Future of Freight Festival in Chattanooga, Tennessee. For more information about the event, click here.
TOPIC OF FIREFIGHT TALK: A look into the future of the sea container market.
DETAILS: Shipping is cooling off. What does this mean for shippers and carriers heading into 2023?
SPEAKER: Nathan Strang, Director of Ocean Trade Lane Management, Flexport.
ORGANIC: In his role, Strang leverages Flexport’s global logistics performance data to define short and long-term maritime strategies that optimize carrier, intermodal and port performance. Prior to Flexport, he served in the US Navy as an operations and tactics expert and strategic planner.
KEY QUOTES FROM STRANG:
“The upside is when you’re a small business and you’re competing with some of these larger importers, they bring their inventory at a much higher price level. You imported it at a much higher freight rate, it was in a warehouse or in a container, costs still accrue. And you see that in inflationary pressures. So even though spending has fallen and imports have fallen, prices have remained high because all of these commodities have costs. If you are a company that is still in the market, you still have goods that you now import at a lower cost, you pay less for freight, you pay less for storage. So we see a lot of pressure to get these commodities out there, to put them on the shelf, because now they can compete better, you can either charge less and take the market share. Or you can match your price to what you see on the shelf and create more revenue opportunities.”
“Importers who have to import stock lag behind other importers who don’t. And that forces them into modes they don’t necessarily want [as carriers reduce capacity]. As a result, they may not be able to take advantage of these lower spot rates as much. Because they need to use a premium service, they need to use an accelerated service, they need to use transload instead of rail, maybe air instead of sea if they are really critical to get to market. So they are also unable to take advantage of this and reduce their landed cost of goods for those goods as much as they should.”
“Earlier in the season this year we have seen a move away from contract rates towards the spot market. Signed contract rates were essentially signed at 2021, slightly less than spot rate prices. We’re a tenth of that now. So the carrier just moved on the spot because these are not generally enforceable contracts. You see enforceable contracts in the market. They have become more popular as interest rates have risen, which is where you see these two and three year contracts in the market. It’s not a big part of the deal. Some of these contracts also come with more guarantees for more spot space. So if you agree to stay with that contract, you’ll have more access to Spot. So there are benefits to shipping at these higher rates when you distribute it through your ledger.”