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CMA CGM caps ocean freight spot prices

Global container line stops all spot rate increases until February, ‘prioritising its long-term relationship with customers in the face of an unprecedented situation in the shipping industry’

Global container line CMA CGM has announced a surprise decision to cap ocean freight spot prices at their current level until February, in a market that has seen massive and almost continuous rises for the last 12 months, in order to prioritise “its long-term relationship with customers”.

In an advisory yesterday to customers, the French shipping giant said the measure “applies to spot rates and is effective immediately until 1 February 2022”.

Explaining the decision, the Marseille-headquartered shipping line added: “The group is prioritising its long-term relationship with customers in the face of an unprecedented situation in the shipping industry. 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.

“Although these market-driven rate increases are expected to continue in the coming months, the group has decided to put any further increases in spot freight rates on hold for all services operated under its brands (CMA CGM, CNC, Containerships, Mercosul, ANL, APL).”

Hapag-Lloyd price freeze

It was unclear at the time of writing what had prompted the decision, or whether other lines will follow CMA CGM’s lead, although Lloyd’s List today reported that Hapag-Lloyd had also decided to place a cap on spot freight rates for containerised cargoes “for a few weeks”.

Container lines have been under pressure from shipper representatives and government regulators to limit container shipping spot rate rises, which have risen to levels that have become unaffordable to many smaller export companies. Government regulators, particularly in the US and China, have launched various attempts to either pressure lines into capping prices or investigate any potential unfair practices by lines that may be pushing up ocean freight rates.

However, lines had until now resisted efforts to moderate prices, arguing that it was up to the market to determine the appropriate level of spot rates.

Although much of the capacity in the market is allocated to customers on the basis of long-term contracts, which are currently at much lower prices than spot rates, forwarders and cargo owners – particularly smaller companies – have complained that their contracted allocations have been significantly cut last year and this year. Cargo owners and freight forwarders have claimed this was being done to boost liner profits at the expense of customer service, relationships and supply chain predictability.

Carriers have argued that they have attempted to honour capacity commitments where possible, but that the effects of the recent and current congestion issues since the start of the Covid pandemic have meant that their capacity has effectively been cut by 20-25%.

Fleet investments

CMA CGM this week stressed that it was “also investing heavily to strengthen its service offering”, noting: “The Group has increased the capacity of its operated fleet by 11% since 31 December 2019, through the addition of new vessels and the purchase of second-hand vessels. Over the last 15 months, the Group has also increased its container fleet by 780,000 TEUs.”

The line continued: “Through these measures, CMA CGM aims at strengthening its valuable customer relationships and providing support as they navigate today’s difficult supply chain challenges.”

Further spot market rises

The latest analysis this week of box shipping prices by digital rates specialist Freightos highlights further rises in spot rates this week, as “snarled ports and peak season demand pushed transpacific rates even higher to start the month, after a lull in increases for much of August”.

It noted: “Record backups at the ports of LA/Long Beach are the major driver of delays that are effectively removing an estimated 20-25% of transpac capacity. Combined with still-surging demand for imports, these delays pushed Asia-US West Coast prices up 12% and past the $20k/FEU mark for the first time this week.”

As carriers again look to alternate West Coast ports like Oakland and now Portland, Freightos noted that “volumes have started causing backlogs in East Coast ports such as Philadelphia as well. Demand and delays are contributing to pressure on Asia-US East Coast rates which climbed more than 10% this week to a new high of $22,173/FEU”.

It said clogged ports in Europe “have kept steady upward pressure on rates from Asia as well, with a 3% increase this week to $14,299/FEU, nearly 8X a year ago, and a 30% climb since the end of May”.

Transatlantic prices, which had been stable for the past two months, spiked 18% to $6,984/FEU, Freightos also highlighted, noting: “This new high – quadruple its level a year ago – is possibly a result of capacity being shifted to ex-Asia lanes.”

Facing possible delays for holiday merchandise and spiking prices, Freightos noted that home furnishings retailer IKEA had “joined the growing list of major importers taking unusual steps to gain control of its supply chain. The furniture giant announced it has purchased its own containers and, like Home Depot and Walmart, will charter container ships during the rush.”

Long-term rates rising

Looking at long-term rates, freight rate benchmarking and market intelligence platform Xeneta last week reported that long-term contracted ocean freight rates now stand more than 85% higher than at this point last year, after another month of high demand, over-stretched infrastructure and difficult negotiations for shippers. Xeneta said that while August saw rates rise by a relatively modest 2.2% (contrasted to July’s 28.1% jump) “there appears to be little sign of relief on the horizon, with increasing port congestion and relentless demand ahead of the all-important pre-Christmas period. Container ship operators are reaping record-breaking financial rewards as a result”.

Patrik Berglund, Xeneta CEO, said: “In the context of 2021, a 2.2% monthly increase in rates appears modest, but in any other year this is an excellent result for carriers. Remember, this is yet another rise on the back of the largest ever monthly increase in July. So, while some may have been expecting – read ‘hoping for’ if you’re a cargo owner – an adjustment downwards, we’re seeing a further demonstration of the powerful position liner operators find themselves in. They really are holding all the cards… and winning big.”

Source: Lloyds Loading List

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