Ocean Carriers Get Tough on Freight Rates — But Can They Hold the Line?

An endless series of crises roiling ocean shipping in the post-COVID 19 era is resulting in a change in “carrier DNA.”

So said a panel of experts at S&P Global’s TPM 2025 conference in Long Beach, California.

Panelists said container lines today are undergoing a radical shift in their basic assumptions about how to service the oceangoing trades. For decades, they concentrated on securing freight and market share for their ever-larger ships, even if that meant slashing rates well below profitable levels. Now, there’s a “top-down boardroom mindset that ‘We can make money,’” said Bob Fredman, principal with logistics consultancy SF Global Insights, LLC.

Carriers are focusing now “on yield management, bottom-line cost containment and deployment of tools within their organization that they didn’t think of before,” Fredman said. That includes stricter enforcement of space allocations to shippers under annual service contracts.

Stephanie Loomis, an ocean product and logistics professional, said carriers are especially exercising greater oversight of non-vessel operating common carriers, who consolidate the business of multiple smaller shippers into one contract. “Carriers are much more in tune with how NVOs are doing business,” she said, including forcing them to tender a certain portion of their freight under higher spot rates.

“It used to be not uncommon to see an importer who moved 1,000 TEUs [20-foot equivalent units] capture a named-account rate close to what a large BCO [beneficial cargo owner] would be paying,” Loomis said. “Those days are gone — absolutely gone.”

Robbert van Trooijen, founder of global investment firm Inception Partners, suggested that the sea change in carrier pricing can be traced to several years before the COVID-19 pandemic struck, with the first outbreak of a U.S.-China trade war that has since heated up significantly. Then, there was a growing fear that aggressive pricing strategies would drive several carriers out of business.

“Carriers have learned to say no [to discounting] in the last few years,” agreed Sanjay Tejwani, chief executive officer of 365 Logistics LLC, a specialist in consulting, recruitment and offshoring for small and mid-sized companies. What’s more, they’ve realized that “they’re in the business not just to provide weekly service, but also to make a profit — that has come in the last four to five years.”

That gradual awareness is among the factors driving the practice of “blank” sailings, whereby the carrier simply skips a scheduled call because it doesn’t offer a sufficient payback.

Blank sailings “are now part of the landscape,” Tejwani said. “If not providing a regular service means you make money, they say now, that’s fine. It’s my belief that that [attitude] is here to stay.”

Freight forwarders, too, could find it harder dealing with profit-hungry carriers. “When the market is tough and carriers need volume, then the freight forwarders are their best friend,” Loomis observed. “As soon as it gets tighter … it becomes even more important that you’re big enough.” Such an attitude, she added, threatens the existence of the smaller “mom-and-pop” forwarding operation.

For their part, carriers are frank about what they view as a dire economic landscape, should they fail to emphasize bottom-line profitability. Søren Toft, chief executive officer of Mediterranean Shipping Company and current chair of the World Shipping Council, told TPM 2025 that “all margin ports will have to be relooked at,” especially if President Trump makes good on his threat to impose heavy fees on vessels built in China and calling U.S. ports. “We can’t proceed to Oakland if it costs another $1 million,” Toft said. And if carriers are unable to pass on that additional expense to shippers in the form of higher rates and surcharges, they’ll likely have to withdraw a substantial amount of tonnage from the trades entirely.

All of those efforts at boosting margins could be for naught, however, if the global economy tanks, and demand for ship space tails off. Heather Hwang, director and head of the Sea Pricing Strategy Department at logistics services provider LX Pantos, predicted that 2025 will see “downward pressure” on freight rates, even as new ships continue to enter the trades. Baseline supply growth in the container trades this year is projected at 4.7%, she said.

“Supply is growing three to four times faster than demand,” said Parash Jain, global head of transport and logistics with banking giant HSBC. So much for hopes that the new year would put behind the volatility of 2024, the result of such factors as a threatened port strike on the U.S. Atlantic and Gulf Coasts, and ships being diverted away from the Red Sea due to missile attacks by Houthi rebels in and around Yemen.

Jain’s projection for the oceangoing trades in the coming year was even darker than some of his counterparts. “We are about to enter into a deeper down cycle,” he said. “We will see significant volatility, which is well underway…