How Non-Vessel-Operating Common Carriers Are Adapting to Shifting Carrier Policies and Market Conditions
The year 2024 will be remembered as a turning point for non-vessel-operating common carriers (NVOs) in the global shipping industry. Facing tightened controls from ocean carriers and shifting market dynamics, NVOs found themselves navigating a landscape rife with challenges. Carriers demanded higher volumes of spot cargo, closely monitored NVO contracts, and leveraged their market dominance to reshape terms. For NVOs, these changes sparked widespread concern among their customers, particularly beneficial cargo owners (BCOs), who rely on them to secure space and stability. This article unpacks the trials that NVOs faced in 2024, including the implications of overcapacity, evolving contractual demands, and the technological enforcement of agreements. By exploring recent data, expert insights, and market trends, we discover what lies ahead for NVOs and the logistics industry in 2025.
1. The Shifting Landscape of NVO Contracts
Carriers Tighten Control
In 2024, ocean carriers leveraged market conditions to exert unprecedented influence over non-vessel-operating common carriers (NVOs), reshaping the dynamics of contract negotiations and freight allocation. Spot cargo, commonly referred to as freight-all-kinds (FAK), emerged as a central bargaining tool, enabling carriers to dictate terms that placed smaller NVOs at a disadvantage.
The Role of Spot Cargo in Market Leverage
Spot cargo involves shipments booked at prevailing market rates, often reflecting higher costs compared to long-term contracts. In 2024, carriers strategically prioritized FAK cargo, demanding increased volumes as a prerequisite for granting named account contracts (NACs). NACs, traditionally reserved for large-volume beneficial cargo owners (BCOs), offer fixed rates and secured space, which makes them a cornerstone for NVOs seeking stable terms for their customers.
A prominent industry analyst highlighted the growing choosiness of carriers, stating, “Carriers became more selective with NVOCC contracts, making ‘named account’ deals harder to secure.” This selectivity reflected broader shifts in carrier strategies, with high spot rates and limited capacity leveraged to maximize profitability.
Impact on Smaller NVOs
The shift toward prioritizing FAK cargo disproportionately affected smaller NVOs. Larger NVOs with higher shipping volumes and established relationships were better positioned to meet carriers’ FAK demands and thereby secured more favorable terms. Smaller NVOs, often reliant on securing NACs to remain competitive, found themselves struggling to access the contracts necessary to serve their clients effectively.
Data from S&P Global Market Intelligence revealed that spot cargo accounted for a significant share of overall shipping volumes in 2024, reaching levels not seen since the pre-pandemic boom. For example:
- In early 2024, FAK rates on the trans-Pacific trade lanes were up to 30% higher than NAC rates. This incentivized carriers to prioritize spot bookings.
- Spot cargo volumes grew by 15% year-over-year, outpacing the 8% growth in contract cargo volumes.
This data underscores the extent to which carriers used spot cargo as a tool to maintain profitability while reducing their dependence on fixed-rate contracts.
Drivers of Carrier Behavior
Several factors contributed to the carriers’ focus on FAK cargo in 2024:
- Capacity Constraints: Disruptions like Red Sea diversions and the temporary closure of the Suez Canal reduced available capacity, creating a supply-demand imbalance that favored higher spot rates.
- Market Volatility: An early peak season and fluctuating demand led carriers to adopt flexible pricing strategies. They used spot cargo to capture immediate gains.
- Profitability Goals: After a period of declining rates in 2023, carriers sought to rebound by maximizing revenue from high-margin FAK shipments.
Long-Term Implications
The 2024 trends highlight a shift in the power dynamics between ocean carriers and NVOs. As carriers increasingly prioritize flexibility and profitability, NVOs face heightened pressure to adapt. For smaller NVOs, this might mean exploring collaborative strategies, diversifying service offerings, or investing in technology to improve efficiency and visibility.
The growing dominance of spot cargo also signals a potential transformation in how contracts are structured, with a greater emphasis on balancing NAC and FAK volumes. This evolution could redefine the competitive landscape of the logistics industry, placing renewed focus on innovation and resilience.
In summary, in 2024, the relationship between carriers and NVOs reached a turning point driven by market conditions that favored spot cargo over traditional contracts. As the industry moves forward, the lessons of this period will shape the strategies of all stakeholders, from carriers to shippers, in navigating an increasingly complex global supply chain.
The NAC/FAK Ratio Debate
Traditionally, the ratio between NACs and FAK bookings varied among carriers. However, the pressure intensified in mid-2024, with some carriers demanding as much as five FAK bookings for every NAC. Christian Sur, executive vice president at Unique Logistics International, noted that by year-end, the ratios had eased to 1:1 or more balanced levels. This fluctuation underscored the volatility of carrier policies and the challenges NVOs face in securing stable terms.
2. The Role of Market Conditions
Overcapacity Looms
The global shipping market experienced significant capacity growth in 2024, with new vessel deliveries adding an estimated 11% to the existing fleet. Another 6% increase expected in 2025 will exacerbate concerns about overcapacity. While some carriers attempted to mitigate this situation through slow steaming and blanked sailings, the glut of capacity created downward pressure on spot rates.
Despite these trends, many carriers maintained elevated rates, benefiting from disruptions like Red Sea diversions and an early peak season. Maersk CEO Vincent Clerc highlighted that carriers have levers to forestall overcapacity, including engaging in disciplined fleet management and scrapping older vessels.
Impact on NVOs and BCOs
For NVOs, overcapacity presented a double-edged sword. On the one hand, increased vessel availability could lead to more flexible contract terms. On the other, carriers’ focus on profitability meant tighter scrutiny of NVO compliance with contractual obligations. BCOs, reliant on NVOs to secure space, raised concerns about clauses absolving NVOs of liability when space was unavailable—a reflection of the strained dynamics between carriers and intermediaries.
3. Technology and Contract Enforcement
Sophisticated Monitoring Systems
One of the most significant changes in 2024 was the rise of technology-driven monitoring of NVO compliance. Carriers deployed advanced systems to track NVO adherence to NAC agreements. In doing this, they disrupted long-standing practices in which NVOs used NAC rates to consolidate multiple shippers’ cargo.
These systems flagged discrepancies in NAC usage, such as commodities or volumes shipped beyond agreed terms, and thereby enabled carriers to intervene. While this ensured greater transparency, it also placed additional pressure on NVOs to meticulously manage their operations. For smaller NVOs, the increased oversight added to the complexity of navigating a challenging market.
Enforcement in a Soft Market
Even in softer market conditions, carriers showed no signs of easing their scrutiny. Marc Meier, global head of ocean freight at Toll Global Forwarding, noted that carriers were seeking a “balanced approach” to FAK and NAC cargo but remained committed to monitoring contract adherence. This trend highlights the need for NVOs to adopt robust digital tools to stay compliant and competitive.
4. The Outlook for 2025
Potential Market Softening
Many industry experts anticipate a softening of the ocean freight market in 2025. With the global fleet projected to grow further, competition among carriers is expected to intensify. Monroe noted that “NVOCCs could find themselves in a more favorable position in 2025 as the market shifts and carriers face increased competition to fill excess vessel capacity.”
This potential shift could lead to more flexible terms for NVO contracts, offering relief to NVOs and their customers. However, this optimism is tempered by the unpredictability of global trade patterns and external factors like geopolitical tensions.
Collaboration and Innovation
As the logistics industry braces for the future, collaboration between carriers, NVOs, and BCOs will be crucial. Investing in technology to streamline operations and improve visibility can help NVOs adapt to evolving market demands. Programs like digital freight management platforms and predictive analytics are becoming essential tools for NVOs to maintain a competitive edge.
Wrapping Up
The challenges of 2024 underscored the complexity of the logistics industry, where shifting market dynamics and technological advancements continually reshape the landscape. For NVOs, navigating these changes requires agility, innovation, and collaboration with stakeholders. As 2025 approaches, the lessons of the past year serve as a reminder of the industry’s resilience and adaptability in the face of uncertainty. By embracing change and leveraging technology, NVOs can position themselves as indispensable players in the global supply chain, thereby ensuring stability and growth in the years to come.
