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Carriers facing ‘quiet before the storm’ for contract rates

A year ago, shippers were desperate to agree to annual contract deals with ocean carriers to secure their supply chains. However, the container line shipping market has taken a 180-degree turn.

Since the ‘non-event’ peak season in July and August this year, container spot rates from Asia have collapsed. Demand has also collapsed and carriers have been obliged to heavily discount their short-term rates.The margin between the weekly decreasing spot rates and the elevated annual contract rates became so great that carriers allowed their core contract customers to book via their spot platforms.

Despite an aggressive blanking strategy, carriers were unable to reverse the fall in spot rates back to pre-pandemic levels. However, there is evidence that spot rates may have bottomed on the key Asia-North Europe and Asia to US West Coast routes.

The contract season is normally well underway on the Asia to Europe tradelane by this time. However, shippers and carriers are reluctant to start negotiations until they see how the market plays out after the Chinese New Year.

Xeneta’s CEO believes we are really just seeing “the quiet before the storm”, in terms of contract rate reductions. He said, “The narrative for the beginning of 2023 looks to be very different. All indicators point towards considerable rate drops from today’s levels.”

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No happy new year for US truckers, but no ‘bloodbath’

Although volumes surged during the 2022 peak season, trucking rates have continued to fall over recent months. The American Trucking Association (ATA) For-Hire Truck Tonnage Index fell 2.5% MoM in November. This followed a 1.2% decrease in October.

Last month’s decrease was the largest monthly drop on the index since the start of the pandemic. However, it still remained 0.8% higher than in November 2021. The CASS Freight Index also declined 0.4% YoY. The numbers reinforce a negative trend already seen in October. FTR Transportation Intelligence reported an 18-month low in trucking conditions. Its Trucking Conditions Index fell to lows not seen since April 2020.

Shippers are no longer scrambling for capacity. According to Loadsmart, available capacity has absorbed traffic volumes in the traditional peak season, which has kept a lid on rates.

The headwinds for the trucking industry are not going to disappear in early 2023. The US is set to face a recession and indicators for a soft market are coming from several key sectors of the economy. According to the ATA, truck shipment volumes declined nearly 5% this year and spend on trucking rose 10%. In 2023, shippers are likely to reduce their spend on trucking and rates should continue to decline.

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About O’Neill Logistics

O’Neill Logistics is a leading third party logistics provider. We operate in California, Savannah, New Jersey. We service many verticals including Garments, Fashion Accessories, Footwear, Furniture, Home Goods, & Electronics. Additionally, we offer omni-channel distribution and all value-added services. Lastly, we focus on retail “drop shipment” fulfillment and item-level fulfillment services with same-day service offerings.

O’Neill Logistics has over 2 million square feet of state-of-the-art facilities. Additionally, we offer dray services to support the warehouses and provide distribution to retailers and wholesalers. Our reliable 3PL platform combines sophisticated technology with robust, flexible processing designs and speed-to-market gateway models.

Lastly, we aim to simplify your supply chain. We deliver exceptional service and can optimize your operational performance. Therefore, we aim to build, protect and foster strong business partnerships.

Please reach out to us if you have any questions or need assistance with your logistics solutions!