Jon Monroe, President, Jon Monroe Consulting

https://jonmonroe.com/
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Jon Monroe

A number of events converged to create a maelstrom in the trans-Pacific trade in 2020. The uncertainty of the COVID-19 crisis, tight carrier vessel management, restructuring of societal norms to create a “stay-at-home” work environment, and the whipsaw-like effect of carrier blank sailings versus the introduction of extra loaders all contributed to an unprecedented perfect storm. The net result is a broken container supply chain that is unmanageable by any means.

Importers find themselves managing an import flow that is both delayed and costly. Import budgets have gone through the roof as ocean freight rates, chassis per diems, and trucker waiting time charges have hit all-time highs. As if this is not bad enough, poor vessel service integrity and equipment shortages have delayed product delivery to customers as much as three to four weeks, with costs that are more than double the expected budget.

While costs associated with these increases were implemented by all parties (carriers, terminals, trucking companies), they were initiated by the ocean carriers’ general rate increases (GRIs). Within four weeks of the contract conclusion, carriers took three GRIs and a peak season surcharge (PSS) on the spot rates. Eventually, the carriers prioritized spot rates over contract rates and began charging a premium to load a container on board.

A premium? Isn’t the contract the guarantee?

The blank sailings ensured the tight space to enforce the rates. When extra loaders were initiated to clean up the backlog, it created a mass movement of containers from Asia to the US, thereby creating container shortages in Asia. And a restructuring of consumer buying patterns under COVID-19 ensured a surge of import volumes through the remainder of the year.

As we begin the 2021 contract season, there are many questions to be answered and much uncertainty. What is the sanctity of a contract? What is the baseline for new negotiations? At what cost can we consider a carrier to be reasonable as a service provider? Have the ocean carriers become too greedy?