Next threat to prices: an increase in product shipping costs


Container ship operators and large importers like IKEA and Walmart Inc.

will soon negotiate freight rates that could affect the prices consumers pay for everything from jeans to cars.

One-year freight contracts, which contribute up to three-quarters of ship operators’ annual revenue, will largely be settled at the TPM conference in Long Beach, Calif., next week. The average price to move a 40-foot box from China to the West Coast of the United States is expected to be between $7,000 and $8,000, a record for annual freight deals and above last year’s average about $5,500, according to carrier and importer executives. involved in the talks.

After two years of supply chain disruptions and transport delays due to the Covid-19 pandemic, importers place high value on service reliability and predictability, with some seeking longer freight contracts term, according to analysts. More than a quarter of all shipping containers entering the United States are goods destined for major importers such as Walmart and Amazon.com Inc., among others, according to ship operators and freight forwarders.

“We are now seeing more and more importers signing annual contracts earlier as well as longer contracts,” said Lars Jensen, managing director of Danish consultancy Vespucci Maritime. “It’s about managing risk in an environment where uncertainty about supply chain stability in 2022 continues to be very high.”

Representatives of several carriers and freight owners declined to comment on the freight talks. In recent months, various companies have said rising transportation costs or efforts to circumvent supply chain issues have eaten away at their profit margins, with some predicting spending will remain at high levels this year.

“The biggest challenge we have right now on the gross margin side is transportation costs,” David Bergman, chief financial officer of Under Armor Inc., said on an earnings call earlier this month. ci, adding that freight rates “will probably take a little bit longer to settle down.

Revenues for container shippers have taken off during the pandemic as demand for manufactured goods has soared with not enough ships to transport them.


Photo:

News by Qilai Shen/Bloomberg

Hasbro Inc., the American multinational toy and entertainment company, said earlier this month that price increases expected in the second quarter will offset rising transportation costs, but the supply chain environment will remain difficult this year.

“We’ve never had such market dynamics, with liners holding all the cards,” said Patrik Berglund, CEO of Norwegian transport data and procurement specialist Xeneta. “The top five operators control three-quarters of all container capacity. That’s a lot of pricing power for very few players.

Revenues for container shippers have taken off during the pandemic as demand for manufactured goods like appliances, cars and home improvement materials has soared, with not enough ships to transport them. At the same time, labor shortages due to Covid-19 outbreaks in ports around the world and insufficient truck, train and warehouse capacity have extended delivery times.

To replenish dwindling stocks, a number of importers have booked crossings with cash rates separate from their annual freight contracts. Some importers paid daily rates of more than $20,000 per box on Pacific Ocean crossings last year, with ships waiting for weeks to unload goods in choked ports that had no space to bring more containers. Large importers have also gone so far as to charter their own ships to circumvent port delays.

The Covid pandemic has strained global supply chains, causing freight backlogs that have driven up costs. Today, some companies are looking for longer-term solutions to prepare for future supply chain crises, even though these strategies come at a high cost. Photo illustration: Jacob Reynolds

Spot prices to send a container from Shanghai to Los Angeles have since declined but continue to hover around $16,000, according to the Freightos Baltic index, from around $4,700 a year earlier.

Analysts expect daily rates to fall later this year as people return to their offices and spend more on services such as entertainment, food and travel. Rising commodity prices and strong demand supported by economic stimulus packages helped lift global trade last year to a record $28.5 trillion, the UN Conference on Trade has said and development in a report this month.

“As these trends are expected to subside, international trade trends are expected to normalize in 2022,” the report said.

The shipping industry suffered a decade of significant losses after the 2008 financial crisis and began to consolidate in 2016. Major carriers have also formed three alliances where they share ships, ports of call and networks, leaving little room for smaller players to compete.

“With the alliances controlling capacity, there is no chance of freight rates falling off a cliff and returning to pre-pandemic levels,” Berglund said.

Write to Costas Paris at costas.paris@wsj.com

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