The 2020 epidemic has brought tremendous changes to the shipping market. In the first quarter of 2021, this change is expected to continue; both shipowners and shippers may strive to convert long-term leases into short-term leases.
The beginning of each year is the peak period for annual lease negotiations. Many market participants believe that in 2021, many trade routes will maintain high freight rates. Therefore, the negotiated price in early 2021 may hit a record high.
David Bennett, the head of Globe Express Services in the United States, said in his December cargo outlook report: “Don’t tell the other party that 2021 is an ordinary year.”
Negotiation time
Most of the annual charter prices for major routes are negotiated in March and April. The source said that if the spot market returns to normal, ship operators will negotiate ahead of time. However, it is clear that shippers/forwarders prefer to wait until the spot market freight rate drops before negotiating.
Las Jenson, CEO of SeaIntelligence, said: "I don't think any shipper is willing to negotiate on the Lunar New Year. At least it is absolutely impossible on trans-Pacific routes."
Generally speaking, the price of the annual lease is negotiated according to the current spot market conditions. Therefore, due to the current good market situation in the consolidation market and the high freight rate, if the contract is signed now, it is likely to appear in the next few months. Because the spot price drops to a level lower than the contract price, the shipper/forwarder bears greater losses.
Market observers predict that due to the surge in freight rates in the second half of 2020 and the confidence of shipping alliances in their own capacity management capabilities, the freight rates proposed by carriers on major trade routes may be higher.
A North American counterpart said: “The freight rates on all major routes will increase in 2020. The days when the freight rate on the west coast of North America was US$1,500/FEU are gone. The carrier will increase the freight rate on the Trans-Pacific route in 2021. The starting price may be as high as US$2500/FEU."
An annual lease can sometimes be replaced by rolling contracts of three to six months, but this is mainly to protect the shipowner and allow the carrier to modify the contract terms when the rent/freight rises, so the shipper/forwarder It is best not to hope with this.
Bennett said: "I think the contract period of a short-term lease and a long-term lease will be different."
The spot market has a growing trend
Currently, the spot market only accounts for less than half of the main routes. However, because some shippers hope to take advantage of the possible downward trend in spot market prices after the Lunar New Year to obtain contracts with lower prices, it is expected that the proportion of the spot market will increase in 2021, showing a mid-to-long term relative to the contracted freight volume. The momentum of growth.
However, some shippers may strive to sign long-term leases (multi-year) to hedge against further increases in freight rates and prevent such situations from happening again in 2020. In the third and fourth quarters of 2020, the spot market aroused strong condemnation from some customers with long-term leases. Some shippers stated that their cargo was abandoned by shipowners who prefer spot cargo and stranded in the docks of North Asian ports. on.
Bennett said: "We expect greater volatility in 2021, so we remind everyone to ensure sufficient cash."
A colleague said: "If the carrier can make a lot of money through long-term leases, then the spot market may not be favored by them. In short, if the long-term leases have already given the carrier huge profits, then they There is no need to attack the spot market."
When a lower-priced lease is signed, the shipper/forwarder will make a profit, but if the spot market freight rate soars, then this shipper’s cargo may also be the first to be abandoned by the shipowner at the port. Therefore, for It can not only guarantee the safe transportation of goods, but also have the opportunity to obtain lower freight rates in the spot market, so some shippers may choose to enter the spot market in 2021.
