Thursday, December 2, 2010

Carrier Trade Group Suggests Increased Transpac Rates

Citing cooling end-of-the-year cargo volumes and rising operational costs, the Transpacific Stabilization Agreement trade group has recommended voluntary rate increases on upcoming contracts – most taking effect May 1, 2011 – of $400 per forty-foot-container unit bound for United States West Coast ports and $600 per FEU for all other cargo.

In addition, the TSA is recommending that its 15 transpacific ocean-carrier members seek "full recovery of costs for other equipment sizes and improved collection of floating bunker and inland fuel charges as well as Panama Canal, Alameda Corridor and other fixed accessorial charges."

The TSA also recommended adjustments to store-door delivery rates as warranted, "to levels that adequately compensate carriers for rising costs in providing those services," according to a TSA statement.

Finally, the TSA recommended a peak season surcharge of $400 per FEU, effective from June 15, 2011 through November 30, 2011, with those dates subject to adjustment based on changing market conditions.

By law, the TSA cannot impose rate increases, only suggest them to its members. In practice, though, TSA recommendations are nearly universally adopted by member carriers.

The TSA said in a statement that despite two early quarters of growth in 2010, a transpacific peak season that cooled as early as July has left the transpacific trade lanes lagging relative to other Asia container markets, while operating costs continue to rise.

The TSA members noted a dramatic trade-wide improvement in the supply-demand situation for freight shippers during 2010. Asia-US cargo growth for the year has been surprisingly strong, and is forecast to settle near 12 percent by year end. According to industry analysts AXS Alphaliner, transpacific capacity grew by 18.6 percent in the November 2009 to November 2010 period. The first three quarters of 2010 saw 15 new and restored services enter the trade to meet demand, in part the result of improved rate levels. These included three new operators.

TSA members are also forecasting 6 percent to 9 percent cargo growth from Asia to the US in 2011. According to the TSA, meeting that demand and covering contingencies for a possible stronger recovery will require sustained revenue improvement.

“The transpacific market is clearly returning to some kind of ‘normality’, with the US and Asian economies still closely linked and imports from Asia still vital to US consumers and businesses,” TSA chairman and Hanjin Shipping Co. Ltd. CEO Y.M. Kim said.

However, Kim cautioned that added revenue is also necessary to support the service levels customers have come to expect in this trade. “Maintaining a stable infrastructure for the movement of goods is no less important today than in past years, and that will take sustained levels of carrier investment over time.”

The TSA carriers acknowledged that the financial picture has improved significantly this year, as the world economy has started to recover from the global financial crisis that began in earnest in 2008 and hit the industry hard in 2009. However, according to TSA, further revenue recovery is needed to restore financial stability.

“Carriers have experienced solid revenue growth across their entire networks in 2010, but two strong quarters in the transpacific – a highly competitive freight market with very thin margins – still do not fully offset two years of heavy losses,” Kim explained. “We said last year that we would not seek to recover all our losses in one year.
TSA Executive Administrator Brian M. Conrad said that a number of operating costs have continued to rise steadily, including labor, container handling, inland transport, and both purchase and leasing of container equipment during the persistent global shortage. Appreciation of some Asian currencies has effectively increased local currency costs relative to US dollar-denominated freight rates. Conrad said individual lines would be discussing with customers in greater detail the background to their revenue and cost recovery objectives as contract negotiations move forward.