Blog Post #3 – Trans-Pacific Shipping Contracts

Pricing, pricing, pricing.  If you’re involved in the logistics industry, that word is sure to be racing through your head every day of the work week.  After all, no one likes to work for free!  It’s also illegal to make people work for free, so there’s that too.  People working in logistics know that the struggle for good pricing is just that – a struggle. 

Since the COVID-19 pandemic began, the world’s supply chain struggles have been put front and center, while also being (rightfully) blamed for many of the issues the economy has had over the past three years.  

Even though the world is still in the recovery process from COVID, supply chain issues are still cropping up.  As of right now, there are only two weeks left for this year’s trans-Pacific RFP contracts to be signed and finalized.   Inbound volumes for importing have ballooned to similar levels that they were in Spring 2020, right as the pandemic was starting.  Basically, if these volumes don’t balance out, and an agreement can’t be made, the lines could cut large amounts of capacity in the trans-Pacific region. 

This comes after a huge surge in spot rates over the past two years (2021-2022), along with a well-known collapse in service reliability throughout the years of the pandemic.  These factors had the effect of leading US importers to sign their contracts at significantly higher rates, and import significantly more cargo than they would have under normal circumstances.  This has led to a sort of rubber band effect in the market, as now inventories in 2023 are extremely inflated.  Some companies are still only importing at all to keep their suppliers happy at best, and afloat at worst. 

It’s not all bad news, though.  The consensus among analysts is that in the second half of the year, things have the potential to stabilize into semi-normal market conditions.  Some companies have been able to at least slightly dodge the impact of these conditions by taking a future spot risk. 

These current and past conditions have shaped the market in a wide variety of ways.  If carriers make large cuts to capacity, shippers that secure lower contract rates are likely to face issues in 2023-2024.  

Market conditions in the supply chain have been in flux since 2020.  Only time will tell if things stabilize in the future. 

—Jack