US retailers face shipping delays as carriers scrap voyages

Shipping companies like MSC and Maersk are attempting to cancel voyages to prop up sagging shipping rates — moves that could trigger another round of cargo delays, according to reports.

After US retailers paid as much as $20,000 to move a container of goods during the worst pandemic disruptions, they now are bracing for delays as containers get bumped from one ship to the next, experts said.

A major US ocean shipping conference kicks off in Long Beach, Calif., this week, Reuters reported. The meeting marks an unofficial start for yearly shipping contract negotiations between carriers, shippers, and their US customers including Amazon and Walmart.

The focal point of the current global supply chain is the Asia-US trade lane as it is the most lucrative and contentious one for carriers. 

In January, the Port of Los Angeles reported 17 scrapped voyages. The move forced consumer product companies in California like MGA Entertainment — a worldwide toys and dolls manufacturer — to shift around 75% of products like Rainbow High and L.O.L. Surprise! dolls from the long-term contract market to the short-term spot market. 

“If (carriers) keep bumping containers, we could end up missing Christmas,” Isaac Larian, chief executive of MGA Entertainment, told Reuters. 

The company is paying around $1,150 per container – a cost savings of more than $18,000 from peak, Larian said. 

During the pandemic, spot rates from Asia to the US West Coast increased more than 15 times and now returned to pre-Covid levels as trade between the US and China cools down, Bloomberg reported. 

With pandemic-weary consumer spending shifting from goods to services, spot rates were the first to plummet, narrowing the gap between spot and contract rates, which were pressured by the threat of recession and competition to fill ships, according to Peter Sand, chief analyst at air and ocean freight rate benchmarking platform Xeneta.

Before declining demand, carriers earned record revenue by focusing on the most profitable cargo, and critical customers had to fight for space and the likes of Walmart, Costco Wholesale and Dollar Tree chartered ships to keep shelves stocked.

But now, shippers are calling carriers out for payback on ocean freight costs they were overcharged. 

“It is shippers’ revenge,” said Jon Monroe, an industry consultant and North American representative of Singapore-based Transfar Shipping, whose investors include China e-commerce giant Alibaba. 

“There was a time when everybody looked for a win-win. COVID threw that right off the tracks,” he added.

The nonbinding nature of ocean contracts drives customers or carriers to push for everything they can get when leverage swings their way, said Lawrence Burns, a consultant who formerly handled negotiations for Hyundai Merchant Marine.

“They’ve been called into the CEO’s office too many times in the last two years. They’re coming back for blood,” Burns said.

The so-called “revenge” may not only apply to the ocean freight market, but also to truckload carriers.

At this point, truck companies convinced themselves that the freight market was “different this time” and their ability to have pricing power would remain in place indefinitely, according to FreightWaves. 

Contract talks between customers and carriers are not often, but in recent earnings calls officials for Walmart – the No. 1 U.S. container shipper – furniture retailer La-Z-Boy, toy maker Mattel and musical instrument seller Yamaha said they expected to benefit from dropping rates.

Following the latest wave of earnings reports, US retail chiefs highlighted improvements in logistics pressures, but it is still early to say the price pain is over, according to Bloomberg.

With Post wires