Contracts on major East-West routes decrease by 6% between March and July
Ocean freight rates for cargoes moving under contracts on major East-West routes decreased by 6% between March and July, enabling hard-pressed shippers to reduce their costs, according to the results of Drewry’s Benchmarking Club.
The cost reduction, based on contract freight rate data provided confidentially by Asian, American and European retailers and manufacturers to the Benchmarking Club, shows that shippers who negotiate well with carriers can continue to reduce their multi-million freight spend, despite the recent strengthening of ship load factors.
“The reduction in average East-West contract rates follows the renewal in May of many transpacific contracts, at lower rates,” said Philip Damas, director of Drewry Supply Chain Advisors, the logistics consultancy arm of Drewry.
Drewry believes that the ongoing decline in contract freight rates is largely driven by the reduction of container carriers’ own unit costs, as well as the tendency of shippers to centralise their contract negotiation tenders.
The Benchmarking Club comprises shippers with annual freight volumes ranging from 5,000teu to more than 300,000teu. Through the Club members can confidentially compare their anonymous contract rates with those of other shippers. They are also able to make comparisons against predefined categories of small, medium and large shippers who are moving cargo on the same routes.
“Carriers often tell shippers that they have the lowest freight rates available in the market. But shippers can only confirm this if they join a specialised procurement Benchmarking Club. You need enough data and independent sources to determine how good your cost position really is,” added Damas.
Due to non-disclosure agreements with all shipper members of the Benchmarking Club, Drewry cannot share detailed cost benchmarking intelligence with companies which are not members of the Club. But it can provide a high-level East-West trades’ contract index. The announcement today is the first such information on contract rate trends since the Benchmarking Club was started in early 2014.
Until recently, there has been plenty of visibility on spot rates, via Drewry’s Container Freight Rate Insight and World Container Index for example, but very little on ocean contract freight rates.
While former and new consultancy clients of Drewry have joined the Benchmarking Club, the company invites any cost-sensitive organisation, or any company unfamiliar with prevailing market rates on new lanes, to consider benchmarking its costs with those of its peers. Under its statute, the Club operates for the benefit of exporters and importers, but is not open to carriers, forwarders and intermediaries.
Source: Drewry
