Here come the GRIs...

Remember 2010? Remember the almost impossibility of getting any space regardless of what you were willing to pay? Remember 2011 and the 3-4 months of increasing and sticking GRIs? Welcome to international ocean container shipping in 2020. A nerve-wracking déjà vu beginning of the reopening and early “Peak” looming on the horizon. 

No one can dispute or blame the carriers for taking out as much capacity as they have. No one should be surprised that they are still leery of bringing on too much too fast. The problem with the small number of carriers and the three alliances exacerbate what seems like a lack of movement to get enough space to the market. Steamships are not planes. They move slowly. Ships are parked in ports in countries far away. Unlike a plane which moves fast and usually just sits on a tarmac in the same country that now needs its space, ships move painfully slow and their schedules are long; weeks not days. No matter how much capacity the carriers put back in, it will take months before the impact is really seen or felt. Even if the carriers trusted the trickling and uncertain volumes moving again, they would still be unlikely to put in enough capacity to actually handle all they are seeing. 

The carriers learned a lesson when the economy crashed in 2008. Chasing unprofitable cargo does not mean profit, it means even more losses. So the carriers, whether on their own or in their bundled alliances, are a much more disciplined bunch. They would rather move less containers at a profit then scoop up a ton of volume by undercutting the market and hoping that the other carriers won’t follow suit. And of course, history shows that they will. If one carrier ditches the market to try to gain market share, like dominos they all fall. And they all lose money. No one wins. In fact, a big loss like the Hanjin bankruptcy is also a real fear. And right now the vast majority of the carriers are closer to bankruptcy than they have been since that crash and its aftermath.

So get ready for some challenging months with GRIs and possibly Peak Season surcharges also being announced every 14-30 days. And be ready for them to stick. If you don’t have an air-tight contract with your carrier/forwarder for your FULL allocation and possible penalties on both sides to hold feet to the fire, be prepared to pay more to keep or get your cargo moving.  

And if you are working with a forwarder/NVOCC let me give you a quick in-service on how the fixed rate contracts work for the forwarding community. Carriers are leery and unwilling to give a fixed rate contract for any more than a 50/50 split for their allocations. This means that 50 percent of the volume of the contract can be protected for a fixed rate customer, but the remaining 50 percent must ride at the spot market rate. For some forwarders they might be able to squeak out a 60/40 Fixed/Spot split. And then it is a constant battle to get from the carriers what was promised. Because when the spot market spikes to the levels we are now seeing, carriers get very, very greedy. A few weeks ago rates to the West Coast were $1500. Overall TPEB contract levels were around $1400. And now the Spot rates are inching higher than $2500-2700. Which cargo would you load? Carriers will protect their largest BCO (Beneficial Cargo Owners), the big-box retailers first and then attempt to move as much spot rate cargo as they can. And even the BCOs will be held to their contracted MQC (Minimum Quantity Commitment) and any additional volume they need will also be subject to a higher rate. 

We have been here before. Bitching and moaning and screaming won’t help. Be realistic and educated about the two different markets; the fixed rate vs the spot market. Ask your forwarder how exactly are you really protected and what is their plan and best case scenario for how much space they can get for you at the agreed rate? If you are willing to be open and transparent about your needs and delivery requirements, there are solutions. You might pick a sailing with a longer transit time to save you from a high spot rate. Ask for a percentage of your weekly volumes to be protected at your agreed rate. Suggest a mitigated lower Peak Season surcharge to be spread across your volumes that may protect you from the full GRI levels, but will keep your containers loaded and moving.

This is going to be a bumpy few months. There is still a tremendous amount of uncertainty. And we as humans despise uncertainty. But having a realistic and fair expectation of the challenges ahead will help you have the right conversations with your carriers, your forwarders, and your department heads rather than sticking your head in the sand or demanding that you won’t pay a dollar more than your agreed rate and see your cargo rolled week after week after week. 

 Just my two cents…