The ocean shipping market rode

When shippers’ demand dropped in March of last year, they slashed their orders, leaving carriers to blank sailings in an attempt to manage capacity and cost. Then, when consumer demand jumped unexpectedly later that year, contract shippers struggled to find space as carriers decided to haul loads from the spot market because of higher rates.

The ocean shipping market rode these wild waves generated by the pandemic last year. While the waters have not yet settled, carriers and shippers are rethinking the way they contract with each other, experts said in interviews and in panel discussions at the recent TPM 2021 conference.

“A transactional price-based discussion alone, in my book, is never a good idea, but especially this year, is not really going to lead to the outcome that you’re looking for,” Vincent Clerc, CEO of ocean and logistics at A.P. Moller – Maersk, said during a TPM discussion last week. “It is really important that we understand what we’re selling and what we’re buying and how we’re going to make it happen together.”

Shippers are seeking increased redundancy and resiliency in their ocean shipping contracts this year. Carriers want to know shippers’ volume is going to keep showing up and that orders won’t be cut.

Priorities have “switched from costs to security of supply” for shippers, Philip Damas, director and operational head of Drewry Supply Chain Advisors, said in an interview.

One change that has resulted from the pandemic is an increased interest in two-way commitments in shipping contracts. Shippers commit to giving carriers a certain level of volume, and carriers commit to enough space to move that cargo at an agreed-upon rate.

Carriers can charge shippers for failing to meet minimum quantity commitments. After capacity issues in 2020, many shippers have decided they would rather agree to pay this fee and ensure capacity than stick to traditional contracts and risk losing space.

NYSHEX, a platform and organization for helping to form two-way commitments between carriers and shippers, has seen increased demand from shippers as a result of the pandemic, CEO Gordon Downes told Supply Chain Dive.

“I think now, for the first time, a lot of shippers — in fact, all shippers — have been negatively impacted by what’s happening in the market and suddenly the value of having a two-way commitment has become way more apparent,” Downes said.

Source: Supply Chain Dive

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