Subscribe to our free, weekly email newsletter!


Ocean cargo carriers plan to restore rate “integrity”

Transpacific Stabilization Agreement (TSA) spokesmen said they face estimated 2011 losses in “the billions of dollars across their global networks, including the transpacific trade.”
By Patrick Burnson, Executive Editor
February 09, 2012

As 2012-13 contract negotiations begin, container shipping lines in the transpacific are readying themselves for tougher bargaining.

Transpacific Stabilization Agreement (TSA) spokesmen said they face estimated 2011 losses in “the billions of dollars across their global networks, including the transpacific trade.”

David Jacoby, President of Boston Strategies International, told LM that vessel overcapacity was contributing the carrier’s weak earnings.

“Too many vessels have been on order, and the rates have softened as a consequence,” he said. “Carriers will have to reverse that trend in a variety of ways.”

TSA carriers are recommending a second, across-the-board guideline rate increase of $300 per 40-foot container (FEU), effective March 15, 2012, following on an initial increase successfully implemented on January 1. The March general rate increase (GRI) is intended to bring Asia-U.S. freight rates back up to near 2011 contract levels, establishing a baseline for upcoming contract negotiations. TSA cited recent investor filings and press reports affirming industry losses, and stress that a further increase is critical to carrier viability going forward.

The Agreement’s 2012-13 recommended guideline revenue program, to take effect no later than May 1, 2012 for all tariff items and service contracts, will raise rates by a minimum of an additional $500 per FEU for cargo to the U.S. West Coast, and a minimum of $700 per FEU for all other destinations. TSA lines also indicated that further additional revenue and cost recovery initiatives would be considered for later in the year, after a review of market conditions and outlook for the second half of 2012.

Lastly, carriers reaffirmed the need for 2012 service contracts to apply per formula rate increases for all equipment sizes, and to provide for collection of full, floating fuel surcharges and other applicable cost-based ancillary charges.

‘The erosion in transpacific rates during 2011 has been well-documented and dramatic,” said TSA executive administrator Brian M. Conrad. “If carriers adopt a marginal increase that only partially offsets huge losses as costs continue to rise, the result is another 18 months of losses. This year in particular, rate recovery must be meaningful in order to maintain service levels and, ultimately, carrier viability.”

Conrad cautioned customers not to assume winter season spot rates on isolated route segments should set contract pricing through mid-2013. “While there may be excess global capacity, infrastructure constraints continue to limit vessel size and utilization,” he said. On the cost side, he added, bunker fuel prices have exceeded $700 per metric ton since the beginning of the year, and West Coast prices in particular are approaching the record levels seen in mid-2008. In addition, improved employment, income, housing and consumer spending numbers suggest improved demand in the coming year.

“There has been a lot of uncertainty in the market and we should not assume the challenges are behind us,” Conrad added. “Still, indications look generally positive for a recovery in the trade, making it all the more important for shippers and carriers to coordinate their forecasting and plan for contingencies, and for carriers to adequately manage and recover their costs.”

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

UPS said that through this acquisition it will augment its healthcare expertise and network in Europe, specifically in the fast growing healthcare markets in Central and Eastern Europe.

Carloads were up 12.1 percent at 312,271, and intermodal at 280,337 containers and trailers saw a 4.5 percent annual gain.

Total November POLB volumes were up 2.1 percent year-over-year at 581,514 TEU, and POLA volumes in November decreased 3 percent compared to November 2013 at 663,346 TEU.

When railroads are doing business with a larger than large customer like UPS, it stands to reason, it can often be the best, and worst, of both worlds, depending on how things are going. That was one of the main takeaways from a presentation by UPS Vice President of Corporate Transportation Services Ken Buenker at this year’s RailTrends conference in New York.

While many market conditions are working against shippers, the most recent edition of the Shippers Condition Index (SCI) from freight transportation consultancy FTR shows that things may be improving, albeit slowly.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA