Ocean Spot Rates Feb 25, 2022 Update

Ocean spot rates, as reported by Freightos, have somewhat stabilized since November, albeit at ridiculously high prices. The China/East Asia to N. American west coast spot now sits at just under $15,900. 

To put this into perspective, the average East Asia to West Coast spot rate in 2018-2019 was $1,617, which represents an 883% increase over pre-pandemic rates. 

BAF fees are through the roof as Very Low Sulphur Fuel Oil (VLSFO) hit an all-time high this week, and now sits about 60% higher than they were just 12 months ago. Additionally, carriers are aggressively, and some say, unfairly applying additional fees and charges.   

The port congestion situation continues to be challenging. 

As of February 23, 2022, there were 66 ships sitting off LA/LB which is a significant reduction from December, when there were over 100. However, as importers look to bypass SOCAL, the congestion has spread to other ports. 

As I write this, there are:

• 33 vessels waiting off Charleston, SC
• 28 vessels waiting off Savannah
• 19 vessels waiting off Houston

As inbound sailings increase in April and May, the congestion is expected to continue and worsen.   

As we watch the global ocean container situation unfold, there are a few interesting backstories to keep an eye on: 

1. End to End Solutions

Steamship lines are using their windfall profits to create end-to-end solutions for their customers through vertical integration and expansion of their freight service offerings. 

For instance, A.P. Moller-Maersk has made numerous acquisitions in the past year, the most recent being the purchase of Pilot Freight Services, a last/middle mile transport company out of Pennsylvania. 

Similarly, CMA CGM, who had previously acquired 3PL CEVA Logistics in 2019, spent $3 billion buying the CLS division of Ingram Micro, which focuses on omni-channel fulfillment. Expect acquisitions, some breath-taking, to continue as the steamship lines look to de-commoditize their offerings. 

2. Long Term Contract Focus

There is a conscious effort to focus more on long-term contracts. This will serve to shield the steamship lines from the volatility in the spot market and enable them to lock in long-term volume commitments. 

Maersk, which allocated about 50% of their capacity to spot just 2 years ago, is looking to lower that to 30% as they focus on long-term contracts with their very largest customers. This will put smaller BCOs and forwarders at a disadvantage as they will continue to be reliant on the spot market, which will offer less reliable capacity at higher costs. 

While shunning the spot market may reduce short-term profits, Maersk has stated that their average contract FEU will drive 90% more in revenue in 2022 than it did just 2 years ago. 

Expect other steamship lines to follow suit.   

3. More Discipline in Managing Capacity

Steamship lines, through the 3 major alliances, have become much more disciplined in managing capacity. This skill was honed prior to the pandemic but has been executed expertly during the crisis. 

Even with horrendous service, steamship lines’ profits have soared. 

It is reported that the alliance members generated $200 billion in income in 2021. This has led to accusations of collusion and price fixing. As reported by FreightWaves, the US Department of Justice last week established a working group to “share intelligence and coordinate investigations of suspected antitrust violations.” 

In Europe, CLECAT, an association of forwarders, customs brokers and transport service providers see the vertical integration as an existential threat to their businesses and are asking the EU to investigate.   

Sources referenced in this post: Freightos, Freightwaves 

Mike Mulqueen, Partner – Blueprint Practice at JBF Consulting, is a leading expert in logistics solutions with over 30 years managing, designing and implementing freight transport technology. His functional expertise is in Multi-modal Transportation Management, Supply Chain Visibility, and Transportation Modeling. Mike earned his master’s degree in engineering and logistics from MIT and BS in business and marketing from University of Maryland.

About JBF Consulting

Since 2003, we’ve been helping shippers of all sizes and across many industries select, implement and squeeze as much value as possible out of their logistics systems. We speak your language — not consultant-speak – and we get to know you. Our leadership team has over 70 years of logistics and TMS implementation experience. Because we operate in a niche — we’re not all things to all people — our team members have a very specialized skill set: logistics operations experience transportation technology communication and problem-solving skills a bunch of other cool stuff.