 NVOs gain trans-Pacific share as COVID-19 disrupts demand |
Source |
American Shipper |
Post Date |
09/28/2020 |
|
Non-vessel operating common carriers (NVOs) increased their share of US imports from Asia in the first eight months of 2020, as tight vessel capacity at Asian ports has forced even the largest importers to book some of their shipments with forwarders rather than directly with carriers. NVOs handled 47 percent of eastbound trans-Pacific volumes through August, up from about 45 percent this spring and 44 percent in January¨CAugust last year, according to data from PIERS, a sister company of JOC.com within IHS Markit.
The growth of online shopping during the COVID-19 pandemic is also contributing to NVO market share growth, as some e-commerce merchandise moves in less-than-container load (LCL) shipments, which NVOs specialize in handling. PIERS does not capture LCL volumes, but it does account for those shipments that are consolidated by NVOs into full container loads.
Beneficial cargo owners (BCOs) each spring sign annual service contracts with a few core carriers in order to leverage their import volumes and lock in favorable freight rates for the life of the contracts. When BCOs are unable to secure sufficient space with their core carriers, they often book the overflow with NVOs, rather than paying high rates.
¡°When you sign with a carrier, you¡¯re only good as long as that carrier has space and equipment,¡± said Alan Baer, president of the NVO TTS Worldwide. ¡°NVOs offer you the ability to flex up to meet demand.¡±
This year, with the COVID 19 pandemic wreaking havoc on demand fores, large retailers and medium-size importers have turned to NVOs for a greater portion of their shipping needs. Volumes of containerized US imports surged unexpectedly in late June as the economy rebounded from COVID-19 lockdowns during March and April. Vessels leaving Asia were overbooked, forcing spot rates higher each week.
Enforcing MQCs
By contrast, BCOs in their annual service contracts signed in May negotiated rates only apply to the minimum quantity commitment (MQC) that importers sign for in their service contracts. With space at a premium all summer, carriers have been holding customers to their MQCs, and any slots that importers book above the MQC are ged the much higher spot market rate.
¡°When [carriers] can get two and one-half to three times the rate level in the BCO contract, that¡¯s what they¡¯re doing,¡± said David Bennett, president of the Americas at the NVO Globe Express Services. NVOs also have contracts with carriers, with their rates during peak periods generally being higher than those in BCOs¡¯ carrier-direct contracts but still lower than the spot rates.
Growth in US import volumes from Asia booked with NVOs has accelerated in recent months, increasing 1.3 percent year over year in June, 9 percent in July, and 23.8 percent in August, according to PIERS. By contrast, import volumes booked directly with carriers declined 13.1 percent in June and 5.3 percent in July before increasing 6.3 percent in August.
The NVO market share in the eastbound trans-Pacific is at the highest level in at least five years. NVOs expect imports to remain elevated at least through October, and possibly longer, so they see their business remaining strong possibly into early 2021.
Big-box retailers and home-improvement chains that remained during COVID-19 are replenishing their inventories, and home-improvement retailers are already looking ahead to the spring, their busiest time of the year. Home-improvement retailers will shipping their spring merchandise in the coming months before factories in Asia close for the Chinese New Year holiday, which falls on Feb. 12, said Alan Baer, president of the NVO TTS Worldwide. That could contribute to exting the import surge into early 2021, he said.
While NVOs have provided retailers and other large importers the relief they needed during COVID-19, shipping patterns in the eastbound trans-Pacific will probably return to a business strategy in which they book most of their cargo with their core carriers in order to lock in favorable rates for the year, with a small percentage left over for the spot market, Baer said.
¡°BCOs may flip back to the carrier-direct bookings they have been used to, so this year does not mark a real fundamental shift,?
|
|
|
|
