Transpacific carriers call for general rate increases this July

Ocean cargo carriers comprising the Transpacific Stabilization Agreement (TSA) announced their intention to raise rates this summer.

TSA executive administrator Brian M. Conrad said transpacific freight rates are still not keeping pace with rising costs, and “a meaningful increase” from current levels is essential to achieve profitability for the benefit of the trade.

“The revenue issue is not going away,” Conrad insisted. “We have to make the case repeatedly that short-term, off-season rates cannot be extended for 12 months or longer in contracts, and that new capacity entering the Asia-U.S. market reflects global trends and an investment in productivity to meet future long-term demand. It does not somehow diminish service value and it does not justify moving cargo at unsustainable levels.”

TSA members are recommending a further guideline general rate increase for all commodities in the amount of US$400 per 40-foot container (FEU) to the U.S. West Coast and $600 to all other destinations, subject to contract terms, effective July 1, 2013.

The news comes at a time when many industry analysts have criticized liner companies for introducing too many vessels despite a lull in demand.

TSA spokesman, Niels Erich, told LM that liner shipping by its nature is subject to periods of overcapacity.
“Ships are ordered based on market forecasts out 15 to 20 years and orders are rarely in full alignment with shorter-term seasonal and cyclical demand,” he said. “Larger ships now being delivered represent an investment in future global trade growth, while achieving efficiencies that lower cost per sailing and help reduce fuel consumption and vessel emissions.”

The supply-demand relationship will always influence pricing, said Erich, but he argued that it should not be allowed to drive rates to the exclusion of fundamental considerations about cost or intrinsic value of the service provided.

“So far we see some increased traffic on Suez routes to the East Coast versus Panama because Suez can handle larger ships cascaded from Asia-Europe into the Pacific,” he added. “But utilization on all transpacific segments has improved since March and we expect continued incremental growth from Asia to the U.S. in 2013.”