Far East-Latin America GRIs Land 15 October: Hapag-Lloyd and CMA CGM Both Add $1,000 a Box

The Analysis

Two carriers, one number, one date. Hapag-Lloyd and CMA CGM both add US$1,000 per container on Asia to Latin America from 15 October. The coincidence is the least interesting thing about it. The interesting thing is that the number is flat: one thousand dollars on a 20ft and one thousand dollars on a 40ft, on a dry box and on a reefer, and, in CMA CGM's version, on an empty container you supplied yourself.

Per container is the phrase to underline. Not per TEU, not a percentage, not indexed to anything. A flat dollar figure dropped onto a rate range that runs from roughly two thousand to five thousand dollars a box means the percentage increase runs from about fifty down to about twenty, and it lands hardest on whoever was paying the least to start with.

Meanwhile the number most people watch went the other way. Drewry's composite index sat at $4,434 per 40ft, down 1% on the week. A Latin America shipper reading that composite would conclude the market is soft. That conclusion is wrong, and the reason is arithmetic rather than opinion: the composite is not built out of your lane.

Scope first, because the two announcements are not the same announcement. Hapag-Lloyd's increase covers 20ft and 40ft dry containers and 40ft non-operating reefer boxes, moving to the west and east coasts of South America, Mexico's west coast, Central America and the Caribbean. One exception sits inside it: 40ft NOR to the Caribbean does not move. CMA CGM's version is wider and takes in reefer containers proper, out-of-gauge cargo and shipper-owned empty containers, and CMA CGM applies it by date of loading. Same headline number, two different sets of cargo, two different billing gates.

Take the scalpel to the flat figure. A $1,000 increase on a $2,000 rate is 50%. On a $4,000 rate it is 25%. On a $5,000 rate it is 20%. Nothing about the cost of moving the box changes with box size, and yet the charge does not vary. That is the signature of a price increase set by what the market will carry rather than by what the service costs, which matters to you for one practical reason: charges set by what the market will carry are negotiable, and charges set by a cost line are not.

Convert it to units, because your customers buy units rather than containers. Assume a 40ft holds 1,200 units of your product and a 20ft holds 600. The 40ft shipper pays about $0.83 more per unit. The 20ft shipper pays about $1.67 more per unit. Same announcement, same dollar, twice the unit cost, and none of the difference has anything to do with how efficiently either shipper packs a box.

Then there is the line that should make you laugh and then make you pick up the phone. CMA CGM's scope includes shipper-owned empty containers. You bring the box. The carrier does not supply it, does not position it, does not maintain it, does not insure it. The increase applies anyway, at the full $1,000. There is no cost event on the carrier's side of that transaction to pass through. That single line item tells you more about the character of this increase than the rest of the announcement put together.

Out-of-gauge is the second version of the same argument. An out-of-gauge box already carries its own premium for the space it wastes and the handling it needs. Adding a flat $1,000 on top prices a cost that was already priced once. If you move project cargo, flatracks or open tops into Latin America, this is your line to contest, and you contest it with a question rather than a complaint: which cost, exactly, went up by a thousand dollars.

Non-operating reefers deserve their own paragraph. A 40ft NOR is a reefer box run dry, booked when dry equipment is tight and priced accordingly. Hapag-Lloyd includes it, and then excludes it for the Caribbean. One exception, one lane, one box type. When a tariff carves out precisely that, it is telling you where the competitive pressure sits: somebody with volume into the Caribbean pushed back, or somebody with alternative space did. Either way, an exception that specific is evidence that this number is not fixed in stone, and it is the precedent to cite when you ask for one of your own.

Why 15 October, and why a thousand. The announcement carries no cost driver. No bunker figure, no canal surcharge, no currency clause, no congestion surcharge being folded in. Compare that with the increases you have seen this year that did carry one; those tend to arrive with a number and a formula attached, and they tend to stick, because there is a cost underneath them. This one arrives with a date. That is not an accusation, it is a classification: this is a general rate increase in the plain sense, a price move, and price moves are defended by demand, which also means they decay with demand.

Two carriers moving on the same day with the same figure is worth reading correctly. It is not evidence of a shared cost shock; a shared cost shock would have produced a formula, not a round number. It is the ordinary rhythm of the rate-increase calendar, where carriers publish into the same window and then watch who follows. The variable to watch is not the two who moved. It is the third, the fourth and the fifth. If one more major carrier matches at or near $1,000 within a fortnight, the lane has reset. If nobody follows, the two who moved start discounting to protect their load factors, and they usually start within three sailings.

The roundness of the figure is a tell in itself, and it tells you how the number was arrived at. Carriers do not model a lane and land on exactly one thousand dollars. They pick a step size, apply it across a tariff and watch what the market absorbs. The step sizes in this market are $250, $500 and $1,000, and you reach for $1,000 when you want the opening announcement big enough that settling at half of it still reads as a win on both sides. Plan the negotiation against that reading: the headline is not the target, and a counter at $500 with volume committed for the quarter is a trade a pricing desk can actually take.

Work out what this does to your contract mix before the quarter closes, because the answer splits cleanly between contract shippers and spot shippers. On a fixed contract carrying a signed rate through the first quarter, an increase of this kind is usually excluded by the rate validity clause, which puts your January exposure at zero and leaves your exposure sitting entirely in whatever spot volume you run outside the contract. On a quarter-to-quarter agreement or a short-fixed arrangement, the increase can be pushed into the next fixing. Pull the contract and read two clauses: the one on general rate increases and the one on surcharge pass-through. The answer sitting in that document decides whether $1,000 a box is a $30,000-a-month problem or nothing at all.

Keep the evidence in one sheet, because arguments about increases like this one are usually arguments about which rate was actually in force. Three columns per lane: the rate before 15 October, the rate after, and the date you last verified each one. Verified means a quotation in your inbox carrying a validity date, not a figure someone quoted you on the phone. Building it takes an afternoon and it ends the argument in ten seconds.

Now the number that will mislead people. Drewry's composite at $4,434 per 40ft, down 1% on the week, is about forty-five dollars off the level before it. The composite is built from the main east-west headhaul trades. Asia to Latin America is not in it, and neither is anything that behaves like your lane. Using the composite as the trigger for Latin America pricing decisions is using a thermometer to measure rainfall. Your lane went up a thousand dollars a box in the same week the index you watch went down forty-odd dollars.

Layering, then. The west and east coasts of South America take the full hit on dry and on NOR. Mexico's west coast takes it. Central America takes it. The Caribbean takes it except on 40ft NOR. Reefer cargo into Chile, Peru, Colombia and Ecuador pays an additional thousand under CMA CGM's wider scope, and reefer is where the percentages turn brutal, because a reefer rate already carries equipment, plug-in and monitoring charges before this increase touches it. If your Latin America book is mostly reefer, budget for more than a thousand, because the surcharges sitting around the base rate tend to move with it.

When it reaches your books depends on the gate. CMA CGM applies by loading date, so a box loaded on 14 October is priced at the old rate and a box loaded on 15 October is priced at the new one, and the distance between those two dates is $1,000 a box. Confirm whether Hapag-Lloyd uses the same gate or a booking-date gate, because the two produce different answers for cargo sitting at the terminal across the weekend of the 14th. On recognition, note the mismatch: freight is invoiced at shipment while the goods arrive weeks later, so the cost lands in your October or November accounts against revenue that has not yet been billed. If you sell on landed cost, the gap between those two dates is your margin, briefly and uncomfortably.

Let us run the numbers on a plausible book. Assume 30 containers a month into Latin America: 18 40ft at an all-in $4,000 before the increase and 12 20ft at $2,200. The increase adds $18,000 on the 40ft and $12,000 on the 20ft, which is $30,000 a month and $360,000 annualised if it held for a year. It will not hold for a year, so take the quarter: $90,000 across the fourth quarter, on a lane that just became 25% more expensive on the 40ft and 45% more expensive on the 20ft.

Set that against pulling cargo forward. Assume five containers can be ready to load by 14 October rather than in the week of the 20th. Moving them saves $5,000 outright. Assume expediting costs you $400 a box in overtime, faster inland haulage and a little storage at the terminal: $2,000. Net saving $3,000 on five boxes, and the arithmetic improves as the count rises. This is the cheapest money available this month, and it expires on a specific date.

Decide what you pass through, and decide it with unit numbers rather than with a feeling. On the 40ft at $4,000 going to $5,000, the freight content of a $20 retail item at 1,200 units a box moves from about $3.33 to about $4.17, eighty-four cents. On the 20ft at $2,200 going to $3,200 with 600 units, it moves from about $3.67 to about $5.33, a dollar sixty-six. If you sell into a market where a dollar sixty-six cannot be passed through, the 20ft is the box to reconsider before the rate is.

The work, in the order in which it expires. Anything that can be gated in and loaded by 14 October should be, and you need the loading cut-off in writing from CMA CGM and the equivalent gate from Hapag-Lloyd, because a verbal answer of around the 15th is not a cut-off. Every open fourth-quarter Latin America quote issued before this announcement goes back to the customer at the new number; a quote left standing at the old rate is a loss you have already agreed to. Ask for the 20ft increase to be set below $1,000, and make the argument in the carrier's own arithmetic: the same dollar is 25% of a 40ft rate and 45% of a 20ft one, and a flat charge that is not flat in effect is a charge you are entitled to have re-scaled.

Contest the scope, specifically. Shipper-owned empties, out-of-gauge and reefer under CMA CGM's wider reading, and 40ft NOR under Hapag-Lloyd's, are the lines where the increase has no cost behind it. Ask in writing for those to be excluded or reduced, and cite the Caribbean NOR exception as proof that exceptions are being granted. Do not ask for the whole increase to be waived. Asking for the parts with no cost basis to come off is a request a pricing desk can process; asking for the whole thing to go away is a request it will forward to nobody.

Set the trigger before the emotion arrives. If the full $1,000 is still being charged in the week of 5 November, three weeks after the effective date and roughly two sailing cycles later, move half of your first-quarter volume onto a fixed rate and stop negotiating box by box. If it has eroded to $600 or less by then, stay on spot and keep tendering. That is the line: full increase into November means the lane reset, erosion into November means it did not. Write it down on 15 October so that you are not inventing a policy on 5 November.

Build your own index while you are at it, because the composite will keep lying to you. Take your last twelve Latin America invoices, split them into two lanes and two box sizes, and record the all-in figure weekly with the surcharge lines separated from the base. Twelve data points is enough to see whether $1,000 held, and it costs one hour to set up. A lane index you built yourself beats a headline index built out of someone else's trade.

The traps are predictable. Rebooking after a missed cut-off is not free: the new booking prices at whatever the market is on the day you rebook, and if a third carrier has matched by then you are rebooking into a higher market than the one you missed. Holding inventory back to wait out the increase is worse, because a 20% annual carrying rate on a $50,000 container costs about $192 a week and the increase is $1,000; you can wait five weeks before the wait costs more than the move, and by then you have missed the selling season. Switching lanes to dodge it rarely works either: Latin America services are thin, the alternatives run through the same hubs, and what you save on rate you pay back in transit time and in reliability.

Where this flips. If a third carrier matches at $1,000 within two weeks, the reset is real and the trigger fires early, so move to fixed without waiting for 5 November. If two carriers hold and the rest do not, the increase decays and your best move is to tender selectively to the carriers that did not move, which is a genuine option on Latin America precisely because the services are thin and load factors matter more to a carrier than the headline rate does. If bunker or a canal charge moves materially in the next month, the character of the increase changes from a price move to a cost pass-through, and the negotiation changes with it: you argue about the formula instead of about the number.

A thousand dollars on a box you already own is not a surcharge, it is a subscription. Somebody will pay it this month, and the only interesting question is for how many months. The lock point, stated plainly: if the full figure is still standing in the week of 5 November, fix half of your first-quarter volume and stop watching; if it is down to $600 or less by then, stay on spot and keep your powder dry. Either way, stop reading the composite index for this lane, because it will tell you the market is soft right up to the week your Latin America budget breaks.

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— By Vivian Zhao