After many months of continual and sharp declines in the spot market for ocean container shipping, the market may have hit bottom – perhaps not surprisingly, as rates were reaching and in some cases falling below variable operating costs for the carriers.

Supply Chain Digest Says...   Jon Monroe, of Jon Monroe Consulting, told theLoadstar that sub-$1,000 rates from China to the US west coast “are not good for anybody."     What do you say?   Click here to send us your comments       Click here to see reader feedback

According to an article on theLoadstar.com web site, spot rates from Asia to the US West Coast were hovering around $1,000 per 40-foot container. For example, the Freightos Baltic Index eased slightly last week to $1,030 for transpacific trade.

Freightos has the cost to ship a 40-foot container to the US East Coast as down 2% last week to $2,215, as that route has held up better than the sinking West Coast market.

As a result all this, shippers “will need to make some important decisions in the coming weeks on what percentage of their volumes they are prepared to commit to carrier contracts,” theLoadstar notes.

Despite a still significant delta between spot and contact rates, many shippers still opt for contract carriage to avoid the added complexity of heavily relying on the spot market.

But many shippers are looking to benefit from the rock-bottom spot rates even in a contractual relationship with carriers. That can come in the form of what is called an index-linked contracts that actually some carriers themselves are promoting.

Under these deals, contract shippers gain some benefit from low spot rates, but the carriers are also given some protection against being committed to a super low prices if and when freight rates eventually recover.

Some see the situation as a matter of survival for some ocean carriers.

For example, Israeli carrier Zim said during last week’s earnings call that it had set a limit on how low it was prepared to go with its contract rate negotiations. CFO Xavier Destriau said the if Zim did not reach “a natural equilibrium” on contract rates, then “we will stop sailing”,” according to theLoadstar. He added: “And if we stop sailing, it may have a drastic effect on the ability of customers to secure their supply chains.”

Jon Monroe, of Jon Monroe Consulting, told theLoadstar that sub-$1,000 rates from China to the US west coast “are not good for anybody,” predicting that if rates are too low the containers booked at those rate levels will be the last to be loaded when the next capacity crunch hits.

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Munroe recommends shippers should sign contracts with carriers “for a reasonable rate”, which he suggests should be between $1,500 and $2,000 per 40-foot container to the US West Coast.

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