Ocean cargo rate hikes should take hold in the Transpacific

Transpacific container shipping lines say a combination of leading market indicators and forward bookings suggest the beginnings of a gradual upturn in cargo volumes. As a consequence, general rate increases (GRIs) appear to be taking hold this month.

Transpacific Stabilization Agreement (TSA) executive administrator Brian M. Conrad said the current trend of modest but steady growth is expected to continue in 2013, with improved vessel utilizations already apparent throughout April, following the traditional post-Lunar New Year lull.

“Coming off a period of close to zero cargo growth in 2012, the outlook is definitely more positive at this point,” he said.

Carriers say strengthening demand and a reversal of rate erosion seen since the end of 2012 are critical to ongoing negotiations with freight shippers toward signing the 12-month contracts under which more than 90% of containerized cargo from Asia to the U.S. moves. Most of those contracts come up for renewal on or around May 1.

The April 1 increases are intended to restore current market rates closer to sustainable levels, to then pave the way for negotiation of further meaningful increases in the contracts themselves. Carriers will continue to assess the current market in the coming months, seeking further opportunities for improvement in moving market rates.

Conrad stressed that despite repeated efforts to shore up rates during the 2012-13 contract season as contracts permitted, revenue gains were inconsistent, as reflected in dire financial reports and ongoing industry consolidation, service changes and formation of new alliances. “As we head into the bulk of the negotiations in April,” he explained, “it is critical for shippers to understand that rates which reflect little or no increase in rates over 2012 levels are simply not sustainable in the long run. The financial repercussions are serious, and carriers are looking to ensure that new contracts include rates that reflect a meaningful increase above 2012 levels, and closer to the post-April 1 market trends.”

In an inteview with LM, TSA spokesman, Niels Erich, said the fundamentals of the U.S. economy remain strong, and lines expect retail imports from Asia to steadily strengthen in the coming months. This is particularly the case for segments like home furnishings, building supplies and back-to-school.

“Look at recent carrier financial reports and announcements of service consolidations and asset sales - they can’t just lock in contract rates for another year at post-Lunar New Year levels,” he said. “It would be money left on the table that can’t be made up somewhere else and can’t be reinvested in service expansions or improvements down the road.”