Do Shippers Share Blame for the Mess Ocean Freight Rates Are In?

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It’s the historically low ocean shipping rates that have in large part created the ongoing Hanjin crisis and the pervasive insecurity in the global ocean shipping markets. A lot has been written about the cause and effect of such low shipping rates with most articles coming to the simple conclusion that it’s all the carrier’s fault.

This is something we have written about ourselves a few times:

What’s Behind the Continued Low Ocean Freight Rates?

Why Are Ocean Rates So Low?

But while carriers clearly own a big part of the responsibility, it’s actually not quite that simple.

Shippers are, understandably, motivated to act in their best interest. Usually this means negotiating to get the best freight rates possible. No one would expect otherwise. In fact, many logistics managers would be fired for doing anything different.

While the pricing tactics used by the carrier lines are sometimes questionable, shippers have played a role in the lower freight rates. Shippers want stable pricing to be able to determine margins. However, pricing can be volatile and many shippers do not want to abide to their contracts when prices drop.   When spot rates fall, shippers want to make sure they are getting the best rate, and can be quick to move volumes to ocean carrier competitors in order to take advantage.

With some consideration, this discussion feels like another variation on the age old logistics dilemma of choosing cost or service. But now, ocean shippers are getting what they pay for not just when it comes to service and transit times, but also by risk and insecurity for the industry. By paying rates shippers know are not sustainable, everyone is setting up themselves and the entire ocean cargo industry for a potential catastrophe.

Here’s a recent article on the topic – Shippers ‘played a major role in Hanjin collapse’

In other words, it’s not the individual shipper’s poor decision that created the Hanjin problem and got their cargo stuck on a ship, but the collective action of all shippers that pushed such risk into the system.

It’s interesting because overcapacity and low pricing aren’t new concerns, nor is the perspective that shippers have some accountability too. Here’s an article from back in 2012 – Who’s to Blame for Ocean Carriers Loses?

From the article, “even major shippers say they would be open to higher freight rates, if the result were more reliable service – but their actions don’t always match their words.”

Again, this is not an argument blaming shippers for the current state. But given the history of the industry and trajectory of ocean prices these current problems shouldn’t be a surprise to anyone. It logical to anticipate many similar problems are on the horizon for shippers if the trend does not change.