Imports continue to rise as consumer demand increases. That’s great news for U.S. importers! But as we’ve seen in 2020, the shipping industry continues to face challenges, and one massive challenge facing U.S. importers is the congestion at ports and delays experienced when importing from Asia.
These changes are causing costs and delays to rise, thus lessening profit margins for importers. The bummer about all of it is that these changes aren’t looking temporary – the power has shifted from shippers into the hands of ocean carriers, and we should expect the changes to be the new norm.
Spot Rates Continue to Rise
We’re used to volatility in spot rates as a result of market conditions, but one thing remains true – the global economy is continuously headed towards growth and higher consumer demand. The last year has shown incredible growth in consumer demand, and there’s no signs of it slowing down any time soon.
Consumer demand has risen as a result of stimulus packages, accumulated savings, and inventory restocking, and we are now headed into another regular peak season on top of an already busy prior 8 months.
Thus far, spot rates have risen and continued to stay high. Spot rates are reliant on the supply of ocean vessels and equipment alongside the demand of consumers, and neither of those are trending in a direction that seems to offer any breaks to shippers in the near (or perhaps long-term) future.
Will Spot Rates Come Down?
Obviously, nothing lasts forever. When the pendulum swings in one direction, it’s expected to come back at some point. It’s the question of when and how much that’s always up in the air. Several shipping experts have estimated that spot rates could drop to more reasonable amounts by the fourth quarter of the year, while others are estimating it could be at least twice as long before we see any drop in those prices.
The underlying point is this – market conditions are not favoring shippers right now, and it would be wise to plan the foreseeable future of your supply chain around what we are currently seeing and experiencing; not a false sense of hope that rates will return to what they were pre-COVID.
Recommendation to Shippers
In a seller-controlled market, everyone is after capacity. Capacity is tight as equipment and vessels remain the same despite several leaps and bounds in consumer demand. Ocean carriers will do anything they can to maximize a profit since they understand they maintain the upper hand. That’s why it is crucial that you make full use of your MQC’s (minimum quantity commitments.)
Now is the time to be accurate in the MQC’s you make with carriers. Get the biggest manageable MQC you can, and follow through on your promises. Overdelivering or underdelivering will both lead you into trouble when dealing with carriers during a seller’s market.
I think most of us would say we never could’ve imagined the state of the world and shipping industry as it’s unfolded in the last year. Even with the insights we’ve gained as time has passed and new norms have set in, there’s still so much uncertainty regarding spot rates, supply, demand, and market conditions.
If you are feeling at a loss as to how to handle your logistics in the upcoming year, or simply have questions you’d love to bounce off of industry experts, please don’t hesitate to reach out to one of our team members! We’d love to start a conversation with you and help in any way we can!