It would be easy to be distracted by the noise in the supply chains of any organization today that has non-discretionary reliance on container shipping. By that I mean the organizations that have no transport or supply alternatives and are consigned to finding the right answers for their freight procurement.

And there is plenty of noise to contend with — some real (Red Sea, China tariffs), some threats (more tariffs) and many unknowns (service levels under the new alliances). However, stripping all that away, it is essential for beneficial cargo owners (BCOs) to focus on what they know. And what they know is what volume they can anticipate TODAY for the forthcoming months up to a year, what their price history is with all carriers, and a view on what they can and cannot afford should rates go against them.

What is also clear is that BCOs have learned a lot from the pandemic era about managing supply chain risk, balancing stock-outs and missed sales versus inventory carry, and to be less reliant on air freight as a reliable and available backup plan.

BCOs have also seen a marked shift in carrier behavior. While relationships still count for tactical requirements, many of the decisions that were made locally (e.g. space availability for BCOs in excess of agreed quantities) have now been elevated to regional or central decision makers. Carriers are not passing up opportunities as they may have in the past, and BCOs, shippers and forwarders are feeling the impact.

BCO chatter

So how does this play out for the current contracting round? Here are some takeaways from discussions I am having with BCOs:

Firstly, carriers are as cautious as BCOs in their approach. The potential for massive overcapacity should the Red Sea really open up (not just words or temporary truces) is a systemic threat to carriers. While carriers are progressively mastering the dark arts of blank sailings, inexplicable and/or unexplainable surcharges and other supply restraints and revenue enhancements, no amount of these tactics will be sufficient to deal with the oversupply of capacity once the Red Sea reopens.

Secondly, an early indicator of a carrier’s expectations is their willingness to engage in three-month contracts, at best six, with a significant premium for a full year. Furthermore, very few carriers (I haven’t heard of any) are willing to give rates inclusive of surcharges. BCO tenders often specifically exclude surcharges, thereby giving surcharges a degree of credibility but also with a requirement they be discussed and agreed ahead of time for both the level of the surcharge and its duration.

Thirdly, rate levels for backhauls continue to decline, and depending on the cargo characteristics, destination, weight, etc., close to zero all-in freight rates are back.

Fourth, there is high skepticism of the new service levels, particularly Gemini Cooperation, and its ability to settle into expected (not promised) service levels. There is seemingly no appetite from carriers to link pricing to performance, even if shippers are willing to consider no or delayed show from their side. This surely indicates acknowledgement from carriers they do not expect significant improvement, at least in the short term.

Finally, many BCOs recall the shenanigans about minimum quantity commitments (MQCs) and a 52-week division being held against them, particularly when volumes grew and space was denied or only given at premium rates. BCOs are likely to commit to less than 100% MQC to protect themselves on the upside and, regrettably, have some margin should volumes fall.

De minimis unknowns

So, what to make of all of this? The market is back in balance right now. BCOs I spoke to are not factoring in a return to Red Sea transit for this year. On that basis, the logic would be to stay in the short-term market of three months to a max of six. A full-year rate will likely attract a premium, but that may well be acceptable.

The final thing to watch out for is the de minimis drama. It is not out of the question that air freight volumes may be adversely affected, and China exporters may find new solutions to deliver these items cheaply in the US and Europe. I expect this would not significantly affect the sea freight market but may make air freight cheaper for promotions, urgent shipments or high-value goods currently consigned to sea that could switch back to air.

Of course, if the Red Sea does reopen and traffic resumes through the Suez Canal, all bets are off for rate levels. It would be worse than any slump seen in the 2010s.

John McCauley, BCO consultant | Feb 14, 2025, 12:10 PM EST

John McCauley, formerly a long-standing vice president of transportation and logistics at Cargill, now consults for shippers.