After two years of absolutely limited capacity, the scenario is changing abruptly

The shipping industry on the verge of a turnaround with freight rates falling and container movement to the US down nearly 20% last month. Ryan Petersen, founder and CEO of Flexport, a company that focuses on supply chain management and logistics; including order management, commercial financing, insurance, cargo transportation and customs brokerage- analyzed the current situation of the maritime-port industry in the US in an interview with Bloomberg. In the current context where the collapse of spot rates in maritime transport can be seen, after a boom period driven by the impact of the Covid-19 pandemic, Petersen referred to the real importance of this value for trade.

In this regard, he explained that in maritime container transport around 60% or 70% of containerized cargo movements are agreed upon in annual contracts and 30% or 4% in the spot market. However, as was the case during the pandemic, the incredible increase in spot rates simply overwhelmed contract rates. “Sometimes people don’t respect the contract. And a lot of people, you know, see these contracts as a kind of gentleman’s agreement, handshakes…” he said.

From limited capacity to recession

As for how excess or shortage of capacity can affect the relationship between shipping lines and shippers/cargo owners, he explained that when capacity is limited, what matters most is the existing relationship: if it is a profitable client, for how long it has been and its consistency. At that point, “the act of committing the cargo and not canceling starts to become more important,” Petersen said.

He pointed out, however, that the picture changes when the space is wide open, since “if there is excess capacity, you do not need a relationship [from the point of view of the shipper]”, something that according to his appreciation should start to change.

He added that “we went through a really long period from 2015 to 2019, 2020, at the beginning of the pandemic, when there was excess capacity in shipping. And then we had two years of extremely limited capacity and it feels like we are right in the middle of a major recession, meaning there is less container shipping than before the pandemic.”