Insights Into 2024 – 25 Shipping Contracts Amid Supply Chain Disruptions and Negotiations

In the midst of the ongoing Red Sea Crisis, which has disrupted transportation through the Suez Canal for over five weeks now, experts like Lars Jensen, a renowned shipping analyst based in Denmark, are closely monitoring developments. Despite the passage of time, the situation in the Red Sea has seen little change, prompting shipping companies to continue adapting by rerouting vessels through the Cape of Good Hope.

Traditionally, annual contract rates from Asia to North America and Europe expire at the end of March each year. However, the uncertainty stemming from the Red Sea crisis, compounded by the recent Lunar New Year spot rates, has cast a shadow over the outlook for the remainder of the year.

Mid-size shippers are bracing themselves for anticipated rate hikes in their trans-Pacific contracts for 2024-25, driven by escalating carrier costs. However, negotiations have hit a snag due to disagreements over supply-demand dynamics and the lingering uncertainty surrounding the Red Sea crisis. Larger retailers, who often set the pricing benchmarks, are striving to maintain stable rates despite carriers’ claims of increased costs attributable to the Red Sea situation.

Amidst these negotiations, concerns have been raised by shippers regarding surcharge waivers and potential shortages of space and equipment. Re-routings prompted by tensions in the Red Sea, as well as potential disruptions at key transit points like the Suez and Panama canals, have further compounded these worries. Shippers are now seeking greater flexibility in routing options to mitigate the potential impacts of these disruptions.  Various associations in North America have also voiced concerns about potential equipment shortages, particularly in light of longer voyages necessitated by routes around Africa. These shortages could significantly impact transit times and overall logistics operations, underscoring the need for proactive measures to address emerging challenges in global shipping routes.

As the Lunar New Year approaches, there’s a brief lull in activity. Many companies, including Canaan Group, are holding off on serious contract negotiations until after the Journal of Commerce’s annual Trans-Pacific Maritime Conference (TPM) in Long Beach. This conference, which Canaan Group attends every year, serves as a pivotal event where industry stakeholders gather to gain insights from economists, analysts, and executives. At #TPM24, scheduled from March 3-6, Canaan Group will eagerly seek clarity on the supply-demand dynamics shaping the shipping landscape for 2024 and beyond.