TPM24: 2024 US line contract season

The contract involves several important parts: the total amount of MQC and the warranty (BSA or A/P), the price of FIXED (NAC), the proportion of FIXED and FAK space (for the freight forwarder), and the surcharge clause (PSS, free detention days, etc.).

Let's start with the fundamentals. The sudden outbreak of the Red Sea crisis at the end of last year has brought no small impact on global shipping, although the impact of the United States line is much smaller than that of the European line, but it is impossible to completely stay out of the situation, and global shipping is a chess game. After more than two months, the sudden changes caused by the Red Sea crisis have stabilized, shipping schedules have adapted to the new normal, and the industry has no earlier panic. Although the crisis cannot be solved in the short term, the impact is being gradually digested and absorbed, and there is little chance of further deterioration.

So when we sit down to negotiate contracts, the Red Sea incident is considered a minor episode, mainly based on the fundamentals of the market this year: overall oversupply. There has been a modest increase in cargo volume, but there has been a larger increase in capacity, which could not be fully absorbed by the detour caused by the Red Sea crisis.

In other words, the pressure of the ship is still to fill the ship. With this basic judgment, the tone of this year's negotiation has been set.

Let's get right to the numbers. At present, the situation is that some of the first-tier FOB direct customers have not increased their prices, and some have increased their prices by 100-200. Last year, the lowest price of direct customers in the West of the United States is about 1200-1300, this year is about 1400, and medium-sized direct customers add about 100-200. Some large direct customer contract negotiations are in December of each year, and the contract validity follows the natural year, that is, January to December. At that time, the Red Sea crisis had not yet erupted, and the shipping company had no confidence in raising prices, and the price negotiated by those customers was estimated to have not increased, if any, it was also a small margin.

To be honest, the price of these customers is far away from us, and the relatively large straight customers are still very few, so it is good to listen to them, and there is no need to envy and hate. Although we do not have the opportunity to enjoy these rates, they are very important to the shipping pricing mechanism. The first person in line has one. The rest of you just stand back.

It is said that the opening price of the shipping company to NVO fixed is about 1700 west, with the judgment of the general trend this year, the shipping company also understands that the freight forwarder may not be willing to accept the price higher than this. The pricing mechanism of NVO FIXED is basically like this: each shipping company has several champion NVO, which is the freight forwarder who takes the most goods and the largest MQC. Once an agreement is reached with them, the approximate price of other freight forwarders will be increased according to the appropriate size of MQC.

Related to the FIXED price is the proportion of FIXED and FAK shipping space, which is very important for freight forwarders, especially when the FIXED approximate price is much lower than FAK, as in January this year. The freight forwarder with FIXED approximate price space can calculate an average freight rate according to the space ratio, and the selling price is lower than FAK. FIXED and FAK space ratio is a "benefit" for shipping companies to freight forwarders, and it is also a watershed to distinguish the competitive advantages of large and small freight forwarders. Generally speaking, the FIXED and FAK cabin ratio ranges from the strictest 20/80 to the more relaxed 40/60. The lower the FIXED rate is than the FAK rate, the greater the power of the shipping company to control this proportion. The shipping company will adjust the ratio of FIXED and FAK shipping space according to the freight forwarder's previous performance records (whether there is abuse of FIXED shipping space) and its judgment on the market (the probability of FIXED shipping space price being lower than FAK, and the price difference). In general, in view of the fundamentals of the market this year, the shipping company will not be too strict on the ratio of shipping space.

After the approximate price and the ratio are negotiated, the remaining thing is the surcharge, which is relatively simple. The free container period will basically follow last year's contract, from 10 days to 14 days, there is not much change.

Is a FIXED price important? Yes. For large BCO, the approximate price forms the basis of logistics costs. Excluding the chaotic years like 2021-2022, the shipping company will carry out the shipping space at the contracted price. For example, in January this year, the price of FAK in the United States was affected by the Red Sea crisis, and there was a short-term rapid rise, which had little or no impact on FOB direct customers who had FIXED prices. Some booking prices are unchanged, some add a few hundred PSS, there is no need to pay thousands of FAK freight, FIXED advantages are obvious. For freight forwarders, a reasonable FIXED rate, coupled with a friendly FIXED/FAK space ratio is a good tool for obtaining goods, especially when the FAK rate is much higher than the FIXED rate. At the same time, the head freight forwarder will participate in the RFQ of many medium and large direct customers, and the FIXED price is a stepping stone.

The raucous crowd at TPM had dissipated, and after several nights of toasting, both sides had gathered more information, and further negotiations began. As far as it is concerned, the opening of the shipowners is not high, the judgment of the two sides on the future trend is basically the same, and the speed of reaching a consensus will not be too slow. After the brief climax of the Red Sea crisis, the days are back to "normal".