Reports have it that CMA CGM just announced they are suspending spot rate increases until February of next year (2022). The news is surprising to most shippers, as rates have been incredibly volatile (and are continuing to rise) since late 2020.
The substantial rate increases are largely attributed to the major decrease in supply amidst rising demand. Consumer demand and U.S. imports are at an all-time high as the eCommerce industry continues to explode and combining the increase in buyer activity with the congestion of ports and global lockdowns and you create an opportunity for rate increases as supply and equipment availability decrease.
CMA CGM announced, “Since the beginning of 2021, container shipping spot freight rates have continued to rise due to port congestion and the major imbalance between demand and maritime container transport effective capacity.”
While continued increases are expected to occur with most carriers in the following months as demand continues to rise (especially in preparation for December holidays), CMA CGM has decided to put a pause on any rate increases until February of next year.
Although this rate increase suspension seems altruistic and selfless, there are several speculations on why it may be occurring:
Increased Government Regulations
As rates have continued to skyrocket, the government has been keeping a closer eye on carriers. More regulations are being instituted, and carriers are having to be especially careful about rate increases and reporting to avoid any negative altercations with the government.
In the House of Representatives last month, The Ocean Shipping Reform act was introduced to target ocean carrier practices. In addition, the U.S., China, and Europe met virtually to discuss recent international shipping issues and bring forth solutions to oversights on the container industry.
Put shortly, as the rates continue to rise, the available equipment is low, and consumer demand is rising, governments are getting more involved in the mix to bring necessary regulations to the table.
Decreasing Shipper Tolerance
Shippers are growing impatient with the delays and are frustrated with carrier freight rate increases. Shipping costs are at an all-time high and shippers have been saying for months that the chaos must come to an end soon.
While the cap that CMA CGM is setting for themselves seems noble, the truth is that rates are already at an all-time high and that isn’t going to change soon. Shippers have also complained about a surplus of additional fees and charges being placed on new shipments.
Shippers speculate that CMA CGM is most likely already entirely booked on capacity until February next year, and the spot rate pauses are merely a theatrical act to create a positive PR illusion. The question of how much this pause will actually affect shippers is yet to be known. The question now is – will other carriers follow suit on the decision?
Shareholders vs. Customers
This is always a business dance – bigger margins are better for shareholders in the short run but drive away customers in the future. Lower margins/rates increase business but decrease overall profits. In an economy where freight rates seem to be stuck in an ever-increasing pattern, where do you draw the line that balances taking care of customers and appeasing shareholders?
Shareholders will largely pay attention to how much the decision will affect the company’s bottom line, and as stated before, chances are high that most available capacity has already been booked through February at this point.
While shippers are hesitant about why shippers have decided to put a pause on shipping rates, the truth is that the pause is good in the end and may potentially be setting a precedent for other carriers to follow suit. Consumers recognize that rates need to drop at some point, and governments are increasing their scrutiny on carriers. Whether or not CMA CGM is the one to start the trend is yet to be known, but this event is at least one step in the right direction for most shippers. If you have any questions or concerns feel free to reach out to one of our team members!