Dave Arsenault, president of Oakland, Ca based GSC Logistics and a former president of Hyundai Merchant Marine America, warned that container space has become a more important factor than cost for booking imports and exports on ocean carriers.
“Cargo owners are a bit gun shy right now. For the last few years, they have so much disruption and distress in their supply chains that the cost of service is … secondary to space.”
Arsenault went on to predict that freight rates would stay high: “The demand exceeds the supply. This means that rates are not going to be coming down, if anything will maintain or even increase, in some markets.”
He said that ocean carriers will also be more discriminating in providing space to shippers:
“The term MQC has historically meant a Minimum Quantity Commitment. And generally, a beneficial cargo owner and importer would contract 70-80% of their forecasted volume for that year into contracts. … In the last year or two, there being so much pent-up demand … that MQC has been kind of pivoted a bit from the minimum quantity commitment to a maximum quantity commitment.”
The result is “What we’re seeing is that some customers are trying to kind of game the system a little bit and started to inflate their MQC volumes so that they have some spare capacity in their pockets… And the ocean carriers had to catch onto that and say ‘look if you’ve been contracting historically with me for 5,000 FEU (40 foot unit containers) and this year you’re asking me for 15,000 FEU … I’m not necessarily going to contract that amount with you.’’”
Arsenault was speaking to the Propeller Club of Northern California on March 31st.
Ocean Carriers Increase Demand On Shippers
In his presentation, Arsenault noted that criteria shippers will need to address:
Shippers will increasingly be confronted by an ocean carrier selection process based on the question: “Are You a Shipper of Choice?” The criteria will include:
Shippers Criteria For Ocean Carrier Of Choice
Arsenault said shippers, in turn, should be insisting on their own selection process determining the “Ocean Carrier of Choice.” The criteria for this selection should include the carrier’s track record on:
Less Free Time
He said shippers should expect significant reduction in free time for storage on terminals as a result of cost exposure to carriers and increased terminal congestion issues.
This comes at a time of ‘Increased Individual Equipment Provider’ role for shippers as ocean carriers continue to exit from “chassis provisioning.”
Arsenault noted that new vessel charter entrants have limited equipment logistics experience and particularly lack export infrastructure so as to return empty containers once import containers are delivered at the container terminal.
Agricultural exporters will face challenges as the “Economics of Moving Load vs. Empty” containers encourages carriers to move empty containers back to Asia faster.
Longshore Contract Negotiations
Arsenault said that contact negotiations between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) could be complicated this summer after the PMA request to extend the current contract was rejected by ILWU. The potential for contentious issues in PMA/ILWU contract negotiations include:
Arsenault noted that the longshore workforce deserves credit for keeping West Coast ports functioning during the Pandemic. Longshore workers “worked throughout the pandemic (and) demonstrated high level of support and cooperation.”
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