**London**: An in-depth analysis by Xeneta reveals that upcoming long-term contracts in ocean freight are facing significant challenges due to rising spot rates and geopolitical uncertainties in the Red Sea, prompting cautious strategies from both shippers and carriers as they navigate negotiations ahead of 2025.
Xeneta has conducted an extensive analysis of new long-term contracts that are set to come into effect on 1 January 2025, revealing an intricate landscape in negotiations between ocean freight sellers and buyers influenced by ongoing uncertainty in the Red Sea. The report highlights the impact of geopolitical dynamics, particularly the recent ceasefire in the Middle East, which has led to a surge of optimism about the potential for container ships to return to the Red Sea. This development could significantly alter freight rates by increasing market capacity, as carriers may opt for the shorter Suez Canal route, compounded by the anticipated delivery of new vessels.
Currently, the majority of container ships are navigating around the Cape of Good Hope, leaving the future trajectory uncertain as the market heads towards 2025. Spot rates remain elevated, with an increase of 142% noted for routes from the Far East to the US East Coast, 100% to North Europe, and 135% to the Mediterranean. These elevated spot rates create a challenging situation for both carriers and shippers as they negotiate long-term contract prices.
When analysing the upcoming long-term contracts compared to those from 2024, the data indicates that rates are on the rise for 7 out of the 9 global fronthaul trades evaluated. Specific attention is given to routes from the Far East to Europe and the US. Notably, long-term rates from the Far East to North Europe have increased by 57%, while rates to the US East Coast and US West Coast reflect increases of 44% and 64%, respectively. However, these new rates remain substantially lower than the prevailing average spot rates.
Further investigation into the data uncovers a complex negotiation landscape. Carriers are particularly concerned about the prospect of freight rates declining rapidly should the Red Sea return to operational normalcy. Consequently, they are entering negotiations with a strategy aimed at securing long-term agreements with shippers to mitigate this risk. Conversely, shippers express caution about locking into long-term rates given the current uncertainty and the potential for rates to decrease.
The report details a marked difference in the rates offered by carriers for long-term contracts extending beyond six months versus those under six months. In terms of discounts extended, carriers offered a 28% reduction for long-term contracts from the Far East to North Europe, while discounts to the US East Coast and US West Coast stood at 13% and 2% respectively. It is acknowledged that shippers in the US are still early in their tender season, suggesting that these figures may evolve.
The data reveals the importance of market understanding among both sellers and buyers. Shippers face a choice: they can opt to secure long-term contracts, which may provide stability for their supply chains amid potential disruptions, or they can possibly benefit from lower rates by delaying commitments in anticipation of market shifts. This decision ultimately hinges on each party’s risk tolerance and willingness to navigate the complexities of freight negotiations without sufficient data.
The ongoing situation highlights an increasing trend toward index-linked contracts, as these arrangements alleviate the necessity for renegotiation during periods of significant fluctuations in freight rates. This evolving landscape underscores the need for thorough market analysis and strategic decision-making in ocean freight negotiations.
Source: Noah Wire Services
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