Ocean cargo: Transpacific shippers brace for new carrier rate hikes

Patrick Burnson, Executive Editor -- Logistics Management, 3/26/2008

SAN FRANCISCO—If it looks like a cartel, and makes moves like a cartel, it must be a cartel. At least that’s what shippers are telling LM about the rate-setting ocean carrier consortium comprising the Transpacific Stabilization Agreement (TSA).

“They call it a ‘talking agreement,’ but it’s clearly anti-competitive,” noted  Peter Freidmann, executive director of the Agriculture Transportation Coalition (AgTC), in an interview with LM last week.

Yet his association and scores of other shipper groups will have to again contend with the collective rate raising practices of TSA carriers.

"Even with substantial cost recovery, the economics of serving the U.S. market from Asia will still result in a challenging profitability picture for most lines", said TSA chairman Ronald D. Widdows, chief executive of Singapore-based APL Ltd.

This is not an observation disputed by many maritime analysts.

“The major U.S. shippers will probably have to live with the higher rates if they want to expect continued reliable inbound service,” said Jon Monroe, president, Monroe Consulting. “With so much capacity now moving on the Asia-EU routes, it’s tough to find space at all.”

Monroe noted, however, that the carriers would be ill-advised to ask for too much.

“By all indications, this is a down economy, and some retailers may simply cut back on demand if it becomes prohibitively expensive.”

Indeed, TSA spokesmen report that a number of carriers in the trade have individually reduced their vessel capacity during the post-holiday winter season to meet demand in other markets.

“Some of that capacity will be restored by mid-2008, in time for the peak shipping season, but net year-on-year TSA capacity growth for all of 2008 is expected to reach only a modest 3.3 percent,” said Niels Erich in a statement.

He added that recently announced vessel-sharing arrangements, involving both TSA and

non-TSA lines, will actually produce additional redeployments and a net decline in transpacific vessel space.