US importers, straining under a tapped-out supply chain, are increasingly offering to pay highly inflated prices for long-term shipping contracts that may not even be honoured as they try whatever it takes to guarantee the arrival of their products.
The pandemic-driven boom in demand for goods has pushed both contract and spot rates for shipping to record highs ─ getting merchandise from place to place costs about 11 times more than it did before the Covid-19 outbreak.
With demand so high and capacity limited, importers are paying up to avoid a repeat of 2021, when some contracts set at lower prices weren’t honoured, leaving customers without their goods.
Importers are accepting higher contract rates because they “fear that the market can get even worse,” said Lars Jensen, chief executive of Copenhagen-based Vespucci Maritime, a shipping market analysis firm.
“Fear of losing out on capacity to some degree trumps the fear of paying too much right now.”
Contracts are typically negotiated on a yearly basis with importers and carriers agreeing to a minimum capacity level between certain ports, and the spot market used for freight shipped outside of the agreed terms. But this year, importers are prepared to pay more, locking in higher, pandemic-era prices for two or even three years ─ despite some predictions they won’t stay as elevated ─ to protect themselves from the volatile spot market.
The shipping chaos has completely changed how David Kunelius, president of Minnesota-based medical device company MedSource Labs, gets merchandise to the US from Asia.
“Pre-pandemic, we would set up shipping contracts for an entire year”, paying about $4,000 per 40-foot container, which allowed for planned investment in research and development, Mr Kunelius said.
But starting last year, MedSource Labs was getting a new quote for cargo every two weeks, increasing by thousands of dollars each time to about $23,000 now.
Rates are unlikely to return where they were before the pandemic, when carriers suffered from overcapacity and low profits for years, said Stephanie Loomis, vice president of international procurement at freight forwarder CargoTrans.
“It’s settling into the market now that the days of really very low, ridiculously cheap ocean rates are over,” she said, adding that prices are unlikely to stay at these levels for more than a couple of years and will probably settle a little lower.
While shippers are interested in securing longer-term freight contracts earlier and for greater durations to best ensure reliability and predictability, carriers only have so much space aboard ships. Orders for new capacity reached a record last year, but that will only relieve markets in 2023 and 2024, according to VesselsValue data.
And with supply-chain disruptions stemming from Russia’s military offensive in Ukraine and China’s Covid Zero policy locking down major manufacturing regions in the Asian nation, things could get harder to predict in the short term.
All this while US goods imports continue at records amid decades-high inflation rates.
Fear of losing out on capacity to some degree trumps fear of paying too much right now
Lars Jensen,
chief executive of Vespucci Maritime
The major ocean carriers have faced criticism for charging such high rates, leaving many shippers and importers ─ or beneficial cargo operators known as BCOs ─ without options.
US President Joe Biden asked Congress to look at the biggest ocean carriers and whether the three major shipping alliances they have formed are anti-competitive. Exporters are paying the price too, as carriers often skip picking up goods to rush containers back to Asia for another load of more lucrative imports to the US West Coast.
Larger freight forwarders are also signing multiyear agreements, and paying more for securities through add-ons, said Robert Khachatryan, chief executive of Los Angeles-based cargo forwarder Freight Right Global Logistics.
Besides a contract rate with a guaranteed allocation of space, a carrier may take 20 per cent of your contracted containers at a lower price with guaranteed space ─ provided importers also book others at premium rates, Mr Khachatryan said.
Last year, ocean carriers offered a lot of “premium services”, including ensuring cargo was loaded on the first ship out, for example. Those extra charges became a substantial part of container movement from Asia to the US and while they are less common right now, they could make a comeback, Ms Loomis said.
Meanwhile, importers like Mr Kunelius continue to battle the volatility.
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
Kill%20Bill%20Volume%201
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SPECS
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3E2-litre%204-cylinder%20petrol%20(V%20Class)%3B%20electric%20motor%20with%2060kW%20or%2090kW%20powerpack%20(EQV)%0D%3Cbr%3E%3Cstrong%3EPower%3A%3C%2Fstrong%3E%20233hp%20(V%20Class%2C%20best%20option)%3B%20204hp%20(EQV%2C%20best%20option)%0D%3Cbr%3E%3Cstrong%3ETorque%3A%3C%2Fstrong%3E%20350Nm%20(V%20Class%2C%20best%20option)%3B%20TBA%20(EQV)%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3EMid-2024%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3ETBA%0D%3C%2Fp%3E%0A
The%20Sandman
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STAY%2C%20DAUGHTER
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'Top Gun: Maverick'
Rating: 4/5
Directed by: Joseph Kosinski
Starring: Tom Cruise, Val Kilmer, Jennifer Connelly, Jon Hamm, Miles Teller, Glen Powell, Ed Harris
Destroyer
Director: Karyn Kusama
Cast: Nicole Kidman, Toby Kebbell, Sebastian Stan
Rating: 3/5
UAE release: January 31
BACK%20TO%20ALEXANDRIA
%3Cp%3E%3Cstrong%3EDirector%3A%20%3C%2Fstrong%3ETamer%20Ruggli%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStarring%3A%20%3C%2Fstrong%3ENadine%20Labaki%2C%20Fanny%20Ardant%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%20%3C%2Fstrong%3E3.5%2F5%3C%2Fp%3E%0A
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
SPECS
Nissan 370z Nismo
Engine: 3.7-litre V6
Transmission: seven-speed automatic
Power: 363hp
Torque: 560Nm
Price: Dh184,500
More coverage from the Future Forum
ASSASSIN'S%20CREED%20MIRAGE
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Killing of Qassem Suleimani
Infiniti QX80 specs
Engine: twin-turbocharged 3.5-liter V6
Power: 450hp
Torque: 700Nm
Price: From Dh450,000, Autograph model from Dh510,000
Available: Now
UAE currency: the story behind the money in your pockets
World Series
Game 1: Red Sox 8, Dodgers 4
Game 2: Red Sox 4, Dodgers 2
Game 3: Saturday (UAE)
* if needed
Game 4: Sunday
Game 5: Monday
Game 6: Wednesday
Game 7: Thursday
COMPANY%20PROFILE
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How the bonus system works
The two riders are among several riders in the UAE to receive the top payment of £10,000 under the Thank You Fund of £16 million (Dh80m), which was announced in conjunction with Deliveroo's £8 billion (Dh40bn) stock market listing earlier this year.
The £10,000 (Dh50,000) payment is made to those riders who have completed the highest number of orders in each market.
There are also riders who will receive payments of £1,000 (Dh5,000) and £500 (Dh2,500).
All riders who have worked with Deliveroo for at least one year and completed 2,000 orders will receive £200 (Dh1,000), the company said when it announced the scheme.
If you go
Flight connections to Ulaanbaatar are available through a variety of hubs, including Seoul and Beijing, with airlines including Mongolian Airlines and Korean Air. While some nationalities, such as Americans, don’t need a tourist visa for Mongolia, others, including UAE citizens, can obtain a visa on arrival, while others including UK citizens, need to obtain a visa in advance. Contact the Mongolian Embassy in the UAE for more information.
Nomadic Road offers expedition-style trips to Mongolia in January and August, and other destinations during most other months. Its nine-day August 2020 Mongolia trip will cost from $5,250 per person based on two sharing, including airport transfers, two nights’ hotel accommodation in Ulaanbaatar, vehicle rental, fuel, third party vehicle liability insurance, the services of a guide and support team, accommodation, food and entrance fees; nomadicroad.com
A fully guided three-day, two-night itinerary at Three Camel Lodge costs from $2,420 per person based on two sharing, including airport transfers, accommodation, meals and excursions including the Yol Valley and Flaming Cliffs. A return internal flight from Ulaanbaatar to Dalanzadgad costs $300 per person and the flight takes 90 minutes each way; threecamellodge.com
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
What is graphene?
Graphene is extracted from graphite and is made up of pure carbon.
It is 200 times more resistant than steel and five times lighter than aluminum.
It conducts electricity better than any other material at room temperature.
It is thought that graphene could boost the useful life of batteries by 10 per cent.
Graphene can also detect cancer cells in the early stages of the disease.
The material was first discovered when Andre Geim and Konstantin Novoselov were 'playing' with graphite at the University of Manchester in 2004.
Company%20profile
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MATCH INFO
Who: France v Italy
When: Friday, 11pm (UAE)
TV: BeIN Sports
