Dive Brief:

• Maersk increased the contracted volume in its ocean freight service by about 20% as it looks to sign up "significantly more" long-term contracts, Maersk CFO Patrick Jany said on the company's earnings call.
• The boost in volume brought its long-term contracts to around 6 million forty foot equivalent units in 2021, with 1 million FFE covering multi-year contracts, Jany said.
• As Maersk renews its contracts in 2021, it is doing so at "higher rate levels," the carrier noted in its Q1 report.

Dive Insight:

The last year of ocean shipping has led shippers and carriers to realize the benefits of longer-term contracts for capacity. Shippers struggled to find capacity as demand for cargo space surged, and carriers want to avoid the financial impact of widespread cancellations like they saw in the early days of the pandemic in 2020.

Not all of the longer-term contracts are using fixed rates, Maersk CEO ​Søren Skou noted on the call. Some of the multi-year contracts are using a fixed rate for the first year before switching to an index-linked rate in later years, Skou said.

He didn't provide details on what index Maersk is using, but there are multiple options that can be used including the Shanghai Containerized Freight Index, or the Container Freight Rate Insight and World Container Index from Drewry, Philip Damas, director and operational head of Drewry Supply Chain Advisors, said earlier this year.

Matson similarly noted an increased interest in contracts in its most recent earnings call.

"Customers were looking for larger volume commitments in the annual contracting process, and we took a pretty cautious approach to expanding that portion of our overall book of business," Matson CEO Matthew Cox said last week.

All of the demand for ocean shipping led to what Skou said was the "best quarter ever in Ocean." Maersk's volume increased 5.7% YoY, and the tight market led to a rate increase of 35%, according to the company's filings.

The higher volume and rates were largely driven by "increases in headhaul volumes from exports out of Asia, and resulting bottlenecks and equipment shortages," Maersk noted in its quarterly report.

The carrier does not see this environment easing any time soon, Skou said.

"We upgraded out earnings forecast last week as we do now believe that the strong demand we experience will persist and the current supply chain issues that are driving up freight rates will continue well into the fourth quarter of the year," he said.