Lines face crunch US rates talks following Red Sea crisis and first vessel loss

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Many US shippers will meet with global container lines at this week’s TPM24 industry event in California, beginning negotiations over new long-term contracts following the Red Sea crisis. This comes as ocean freight shipping rates have just posted their highest monthly increase since June 2022, benchmarking platform Xeneta reports, and hard on the heels of this weekend’s first sinking of a vessel as a result of the Houthi missile attacks.

Michael Braun, Xeneta VP of Customer Success & Solutions, says: “We have seen the impact of the Red Sea surcharges on long term rates at a global level but are we now going to see it on a regional level, particularly on the Transpacific? Importers into the US West Coast will say this is a problem between Asia and Europe and we’re not willing to pay more. Carriers will say this is a global problem because we have to redeploy capacity from the Transpacific onto other trades which are directly affected by the Red Sea diversions.

“This is the million-dollar question ahead of negotiations because both the carriers and shippers have extremely strong positions. The problem is they are some thousand dollars per FEU apart in what they are aiming for.”

Imports into US East Coast are more directly impacted by the Red Sea diversions than the Transpacific.

Braun says: “Transpacific rates are driven by supply and demand, but imports into the East Coast are impacted by either the situations in the Suez Canal or Panama Canal. Both routes are full of negative consequences and an upward cost ticket is unavoidable.

“If I’m a freight professional shipping out of India to the US East Coast I am currently looking at a doubling of my costs on the spot market.”

Braun believes the situation will make contract negotiations difficult but that solutions can be found.

“Shippers can fix long term but if the Red Sea situation ends earlier than expected they could be left overpaying,” he says. “Clearly there needs to be some flexibility built into the new agreements otherwise it is a big risk for both sides. It could be done through agreement to review after three months or an index to mitigate risk. It depends on the individual players but there has to be a variable element.”

Xeneta is set to launch the next generation of the ocean and air freight rate benchmarking platform in 2024 with previews being showcased at this week’s TPM24 (formerly Trans-Pacific Maritime) industry event being held in Long Beach, California on 4-6 March.

Meanwhile, although there is no sign that Houthi rebel missile attacks on commercial shipping in the Red Sea area have stopped, French line CMA CGM for one has announced it will resume Red Sea transits on a ‘case-by-case basis’.

Separately, the UK-owned Rubymar handysize bulk carrier hit by two Houthi missiles in mid-February finally sank over the weekend, becoming the first to do so as a result of the attacks. The vessel’s cargo of fertiliser poses a potential threat to marine life in the area, environmentalists have warned.

A detailed examination of the impact of the Red Sea crisis can be found in the latest issue of SMI magazine available here: https://shipmanagementinternational.com/smi-issues/

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