France’s CMA CGM, the world’s third-largest ocean carrier, will cease all increases in spot rates worldwide through Feb. 1, effectively immediately.
At first blush, the decision sounds like a game changer. But even if other carriers make similar announcements, how much of this is genuine mercy toward customers that will have bottom-line effects and how much is good public relations?
Surprise announcement
“Since the beginning of 2021, container shipping spot freight rates have continued to rise due to port congestion and the major imbalance between demand and maritime container transport effective capacity,” said CMA CGM.
“Although these market-driven rate increases are expected to continue in the coming months, the Group has decided to put any further increases in spot freight rates on hold for all services operated under its brands (CMA CGM, CNC, Containerships, Mercosul, ANL, APL).”
CMA CGM said that it is “prioritizing its long-term relationship with customers in the face of an unprecedented situation in the shipping industry.”
Higher rates, higher government scrutiny
The carrier’s announcement comes at a time when freight rates continue to increase and when regulatory attention toward container lines continues to escalate.
Drewry’s World Container Index weekly assessment reached yet another all-time high on Thursday, at $10,834 per forty-foot equivalent unit. Drewry’s Shanghai-Los Angeles assessment rose to $11,569 per FEU and its Shanghai-New York assessment to $15,124 per FEU.
The Freightos Baltic Index — which includes premium surcharges in its U.S. trade assessments — put Asia-West Coast at $20,586 per day and Asia-East Coast at $22,173 per day.
On the regulatory front, the U.S., Europe and China held a virtual summit Tuesday to discuss supply chain bottlenecks and oversight of the container industry. Last month, the Ocean Shipping Reform Act was introduced in the House of Representatives, targeting carrier practices. In July, the Federal Maritime Commission signed a first-ever cooperative agreement with the Justice Department’s anticompetition division.
‘This chaos must soon end’
Asked by American Shipper for his reaction to the CMA CGM decision, consultant Jon Monroe replied, “Are the carriers finally realizing that this chaos must soon end? Will other carriers follow suit?”
CMA CGM is a member of the Ocean Alliance together with China’s Cosco and Taiwan’s Evergreen. According to Alphaliner, the Ocean Alliance is the largest player in the Asia-North America trade, with a market share of 37.8%. Alliance members share vessels but price and market their capacity separately.
Capping rates at record-high levels is better for cargo shippers than not capping them, but even so, shipping costs will remain at unprecedented highs and all-in shipping costs don’t just include the base rate that is being capped. They also include, to an unprecedented degree, additional premium fees and other charges. Meanwhile, the biggest challenge for many shippers is not price, it is getting cargo moved at any price.
Jefferies analyst Randy Giveans told American Shipper, “This [cap] is only from September to February and I would assume that CMA CGM ships are already almost full from September to February. They don’t say how much capacity this applies to or how impactful this will be. It could be like a gas station after Hurricane Ida telling people it’s not going to increase gas prices when it only has 8 gallons left in its tank.”
Balancing shareholders and customers
Whether other carriers follow CMA CGM’s lead and cap spot rates raises another question: Don’t carriers have a responsibility to their shareholders to maximize returns?
“There is always a balance for all companies between customers and shareholders,” said Giveans when asked about this responsibility. “You don’t want to gouge your best customers. It’s not about making as much money as you can now no matter what — that’s shortsighted. There’s a balance between squeezing out every penny you can and sustaining relationships with your best customers.
“We may see other announcements from other lines and this will provide some goodwill with customers and with governments. In 2023, they can say: ‘Hey Walmart, Target, Amazon: Remember back in Q4 2021 when we didn’t charge you that extra $2,000?’”
“But if they’re saying they’re not going to increase rates, how much have they already increased rates? And how much capacity do they even have left to sell?
“I don’t think this means [carriers] are not going to do better in Q4 than Q3. That’s not the takeaway here,” said Giveans. “Let’s be real: They’re going to have a blowout Q4 no matter what.”
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