BCO’s Put Pen to Paper as Spot Rates Stabilize

Welcome to our latest Market Watch update, where we delve into the ever-shifting dynamics of sea and air freight. From the intricacies of Asia-to-North America routes to the latest trends in contract negotiations for 2024-2025, we analyze the key developments shaping the industry. As supply and demand economics prevail in sea freight, and air freight rates remain elevated due to disruptions and e-commerce demand, we provide insights into the evolving landscape. Stay tuned as we explore fixed-rate contracts for the coming year and offer recommendations for navigating the complexities of global logistics.

In a market driven by rapid rate swings and geopolitical volatility, having a Control Tower platform with real-time data is no longer a luxury — it is the foundation of a resilient supply chain strategy.

Ocean Freight: Asia to North America

The first quarter of 2024 set the stage for a complex contract season, with market conditions heavily influenced by the ongoing Red Sea crisis, Panama Canal restrictions, and evolving carrier capacity strategies.

Capacity vs. Demand: A Shifting Balance

Supply and demand economics prevailed through the early months of 2024, as capacity continued to outpace demand while simultaneously accounting for the longer distances and transit times required by Red Sea and Panama Canal detours. The U.S. East Coast showed significantly more available capacity than the West Coast, with some WC voyages reaching full utilization.

Carrier capacity was expected to increase in May to its highest point in 17 months, driven largely by the tonnage impact of vessels rerouting around the Cape of Good Hope — a counterintuitive result where longer voyages effectively removed ships from the available capacity pool, even as new builds entered the market.

These dynamics are a textbook example of the supply chain challenges that global logistics professionals navigate — where headline capacity numbers tell only part of the story, and effective routing and booking strategies determine which shippers get their cargo moved on schedule.

Red Sea Crisis and Routing Implications

The Red Sea disruption continued to be the dominant structural force reshaping global ocean freight in early 2024. Vessels avoiding the Suez Canal and rerouting via the Cape of Good Hope added approximately 10-14 days to transit times on Asia-to-Europe and some Asia-to-U.S. East Coast routes. The capacity absorption effect of these longer voyages was one of the key reasons spot rates remained elevated even as new vessel capacity technically continued to enter the market.

For importers evaluating their supply chain risk management strategies, the Red Sea situation reinforced the value of maintaining multiple carrier relationships and flexible port options rather than relying on a single routing plan.

Contract Season 2024-2025: BCOs Sign at Higher Rates

One of the defining stories of the Q1-Q2 2024 period was the behavior of Beneficial Cargo Owners (BCOs) in the annual contract market — and the terms that defined the 2024-2025 fixed-rate agreements.

BCO Signing Activity and Rate Levels

BCOs began signing carrier contracts at rates 12-17% above the prior year, reflecting the sustained elevation of ocean freight costs relative to the historically low rates of 2023. For many importers, the decision to lock in annual contracts offered budget predictability in exchange for potentially missing out on further spot market softening — a trade-off that made more sense as geopolitical risks kept downside limited.

Use our tariff calculator to model the landed cost impact of rate changes across different trade lanes and product categories.

2024-2025 Fixed-Rate Contract Terms

The following terms were widely applicable to new Named Account Contract (NAC) agreements signed during this period:

• MQC requirement: At least 300 TEU for each NAC
• Weekly MQC: At least 4 TEU per week on a single port pair
• Validity: May 1, 2024 through April 30, 2025
• Bunker surcharges: Inclusive of Q2 costs, backed out at time of filing, floating quarterly per tariff
• Included surcharges: GRI, DTHC, ACC, Panama Canal surcharge, and Suez Canal surcharge
• Conditional surcharges: ISPS, TSC, Carbon Tax if applicable
• PSS: Subject to mutual agreement
• Cargo: General cargo of legal weight only
• Approval: Subject to carrier’s final approval and contract filing

Our trade advisory services team works directly with importers to evaluate contract terms against their volume profiles, commodity mix, and risk tolerance before signing.

Air Freight: Volume Growth and Elevated Rates

Air cargo markets in early 2024 were characterized by strong year-on-year demand growth and rates that remained well above historical norms — a combination driven by structural e-commerce demand and ocean freight disruptions pushing cargo toward air alternatives.

Strong Volume Growth Continues

Year-on-year global tonnage data showed air cargo volumes up by +8%, with February marking the third consecutive month of double-digit year-on-year demand growth according to data from the International Air Transport Association (IATA). The sustained momentum was driven by:

1. E-commerce demand: Chinese platforms continuing to ship high volumes of direct-to-consumer goods via air to meet delivery time commitments.
2. Ocean freight diversion: Shippers unable to secure reliable ocean capacity — or unwilling to absorb the added transit time of Cape of Good Hope rerouting — shifted cargo to air lanes.
3. Post-pandemic restocking: Retailers accelerating inventory replenishment ahead of peak season added incremental volume across both ocean and air channels.

For shippers evaluating when air makes sense versus ocean, the comparison is never purely about rate — transit time, inventory carrying cost, and product perishability all factor in. Our guide to air vs. ocean freight breaks down the key decision criteria.

Key Industry Developments in the Period

Several significant events shaped freight markets in this period:

• Trans-Pacific blank sailings reduced: Carriers began blanking fewer trans-Pacific sailings than in the prior two years, as longer Red Sea rerouting voyages continued to absorb capacity that would otherwise be surplus. Capacity on Asia-U.S. trades was set to reach its highest level in 17 months in May.
• Chinese import restrictions expanding: U.S. Customs and Border Protection was expected to add more Chinese companies to the forced labor import ban list, with compliance implications for importers of affected goods. Understanding Section 301 tariffs and related trade restrictions is essential for affected supply chains.
• Air cargo volumes surge: IATA’s February data confirmed an 11.9% jump in air cargo volumes year-on-year, reinforcing the structural demand story across the air freight market.
• USPS air cargo contract awarded: UPS won the dominant air cargo contract for the U.S. Postal Service, replacing FedEx for the first time in more than 20 years — a significant shift in domestic air logistics infrastructure that would influence capacity allocation across the broader market.
• De minimis crackdown: The U.S. government announced plans to crack down on e-commerce import methods favored by Chinese platforms like Temu and Shein, which had previously allowed low-value shipments to flow into the U.S. with minimal duties and scrutiny. Understanding changes to the de minimis rule is increasingly important for e-commerce shippers and 3PLs managing direct-to-consumer volumes.
• Baltimore rerouting data: Early data from the Francis Scott Key Bridge collapse showed trucks and ships actively rerouting through alternative ports and corridors, with supply chain data providers beginning to map the real-world impact on freight flows and transit times.

Strategic Takeaways for Shippers

The early 2024 market environment contained important lessons for importers, exporters, and logistics managers navigating a structurally more complex supply chain landscape:

1. Carrier relationships matter: In a market where carriers prioritize higher-paying cargo and BCOs are locking in annual rates, having strong relationships with your forwarder and carrier contacts is a competitive advantage.
2. Fixed vs. spot requires scenario modeling: The 12-17% premium BCOs paid over prior-year rates sounds high — but against a spot market that could spike significantly higher during peak, fixed rates offered real risk protection.
3. Understand your trade compliance exposure: The expanding forced labor import ban list and de minimis changes add compliance complexity that goes well beyond freight booking. Consult trade advisory services before issues reach your port of entry.
4. Use real-time visibility tools: In a market with this much disruption — from Red Sea security threats to port congestion to canal restrictions — the ability to track ocean, air, and land freight in a single dashboard is a genuine operational advantage.
5. Plan for consolidation opportunities: For shippers without BCO-level volumes, a smart freight consolidation guide strategy can help access better rates and carrier prioritization during tight capacity periods.

Questions? All you have to do is contact us.