Last year was a challenging one for Steve Tanaka, who manages international shipments for Seattle-based Evergreen Hardwoods Inc. Evergreen does business worldwide, largely with Asia and Europe, with a small percentage in Latin America and Africa.

The U.S.-to-Asia route gives him by far the most headaches, Tanaka says. Strained transportation capacity along with congestion at ports in Long Beach, Baltimore, and Norfolk have resulted not only in rising rates and delayed shipments, but also in high demurrage fees. "A lot of our containers can't be moved out of port because there aren't enough truckers to haul them," Tanaka laments. "As a result, we've paid hundreds of thousands of dollars in demurrage over the past couple of months."

To cope with these problems, the company has placed more emphasis on advance planning, installed new transportation managementsoftware, and focused on better coordination between transportation and warehousing. With those changes in place, prospects for 2005 are looking up. Tanaka expects the U.S.-Asia trade imbalance will keep export rates low as carriers continue offering bargain-basement prices to avoid taking empty containers back to Asia for repositioning. The promise of new, larger container ships that are scheduled to come into service soon is another bright spot, says Tanaka, who hopes the resulting capacity increase will help drive down import rates.

Tanaka is not alone in his frustrations and his desire for less expensive, more reliable service. A combination of high fuel prices and rapid growth of Asian exports that outstripped world fleet capacity have led to higher shipping costs in several trade lanes, observes Paul Bingham, a principal at Washington-based Global Insight Inc. Carriers and shippers have also had to adjust to peak-season congestion in both the trans-Pacific and European trades, and that's put additional strains on fleet capacity, he adds.

That won't change in the immediate future, say industry analysts. They're forecasting rough seas ahead for freight rates and capacity availability, not only on the Asia-U.S. trade lane, but also on U.S.-Europe routes. Latin America, meanwhile, is expected to maintain an even keel for now.

U.S.-Asia trade remains the fastest-growing market for ocean shipping. Rate increases have been a regular occurrence and are expected to continue in 2005, albeit at a somewhat slower pace than in the past two years.

"The industry is in an unprecedented stage of strong growth rates that haven't yet been [mitigated] by additional capacity," says Mark Kadar, a director at Mercer Management Consulting in Boston. "The fact that vessels are full on the Asia-U.S. route is allowing rate increases and strong profitability among the shipping companies."

A case in point: In October, the Transpacific Stabilization Agreement (TSA), a consortium of 13 lines in the eastbound trans-Pacific trade, finalized pricing plans for its 2005 tariffs and service contracts. The TSA proposed increases of $285 per 40-foot container for shipments to the U.S. West Coast, $350 for intermodal shipments to inland destinations, and $430 for all-water shipments to U.S. East Coast and Gulf ports via the Panama and Suez canals. Those price hikes—considerably lower than last year's numbers—reflect an 11- to 12-percent increase in carriers' operating costs.

With rate hikes factored in, U.S. importers can expect to pay between $1,850 and $1,900 on average to move a 20-foot equivalent unit (TEU) from Asia to the United States this year, says John Fossey, director of container shipping at Drewry Shipping Consultants in London. Exporters, on the other hand, will pay just $800 to $850 to ship that same container to Asia, he notes.

Because carriers will continue to see their business grow, Kadar says, shippers shouldn't expect fuel surcharges and congestion, particularly at West Coast ports, to ease in 2005. He predicts traffic on the Asia-U.S. route will increase by 12 to 15 percent over the next 12 months. "That growth will not be substantially offset by additional capacity," he adds. "As a result, issues that shippers are facing at the moment, such as full vessels and increasing prices, will continue next year."

That doesn't mean the outlook is entirely gloomy. Carriers in the trans-Pacific trade say they're not idly standing by, enjoying the strong business environment at the expense of their customers. APL Americas Regional President John D. Bowe says many carriers are considering alternative routes and vessel deployments to help ease the capacity crunch. Continued...

1 2 3 Next