The annual contract season is down to the final stretch in the trans-Pacific shipping market. U.S. import costs, liner profitability and service reliability all hinge on where contract prices settle in the next few weeks.
The plot twist this year is that the prior round of annual contracts were signed at historically high levels and the timing of the current contract RFP season coincides with a period of still-sinking spot rates.
Import demand remains weak due to bloated inventories, with inbound volumes reminiscent of spring 2020, when the culprit was COVID lockdowns.
The risk ahead: If shipping lines cannot obtain enough contract business at rates sufficient to cover costs as a result of weak demand and falling spot rates coinciding with the 2023 contract RFP season, the lines could take drastic action and cut much more capacity in the trans-Pacific, reminiscent of what they did in 2020.
