Ocean cargo shippers may be hit harder on rates
September 26, 2012 - LM Editorial
Transpacific shippers will be facing a new wave of price hikes next year, as carriers collectively agree on a future rate structure.
Member carriers in the Transpacific Stabilization Agreement (TSA) have adopted a set of guideline rate and ancillary charge adjustments that they intend to apply to all new and renewed service contracts, from all Asian origins, to become effective with those contracts, from mid-October going forward. This includes “early bid” contracts concluded in late 2012 and early 2013, as well as standard contracts which typically take effect on May 1, 2013.
Container lines serving the Asia-U.S. trade lane reaffirmed their commitment to reversing 2011 and 2012 losses, and to raising the baseline for freight rates as they head into a new round of 2013-14 contract negotiations with customers.
Jon Monroe, president of Monroe Consulting, told LM that this move should come as no surprise.
“Shippers understand that carriers have to compensate for their over-spending in the past,” he said. “But this doesn’t mean that NVOs (non-vessel operators) can’t negotiate better rates.”
As to whether asset-based carriers will compromise on rates remains a question, however. Maersk, which left the TSA earlier this year, has also announced plans to apply more discipline in contract negotiations next year.
TSA is recommending rate increases of $800 per 40-foot container (FEU) to the U.S. West Coast; $1,000 per FEU via all-water to the U.S. East and Gulf Coasts; and $1,200 per FEU for intermodal shipments via all coasts. Members also reiterated the need for full fuel cost recovery, including the bunker charge; the recently adopted low-sulfur component to address the higher cost of using cleaner-burning fuels within North America coastal zones; and a new, simplified intermodal fuel component – a single component for all inland destinations that will be incorporated into the bunker charge and will replace the current inland fuel surcharge, effective January 1, 2013.
Brian M. Conrad, TSA executive administrator, said container lines have faced a steep uphill climb throughout 2012, to reverse dramatic revenue losses as steeply discounted rates in key lane segments crept into 12-month contracts.
“The eastbound transpacific is a dynamic, highly competitive market,” Conrad said. “Rates negotiated for one route or commodity too easily go viral, spreading to all routes and commodities. That may often be the nature of markets, but it does not necessarily mean those rates are anywhere near economically sustainable for lines carrying the cargo.”
Conrad stressed that the proposed rate increases are badly needed because overall rate levels fell so far earlier in the year. He added that interim general rate increases taken during 2012 were each only partially applied as individual contract terms or negotiations with customers allowed. As a result the cumulative revenue effect, while helpful, was less than it appeared.
“TSA lines are mindful, going forward, of the need to avoid the rate erosion that typically occurs during the winter season, as contracts expire or open for renegotiation as their service commitments are met,” Conrad said. “It is critical that, between individual lines’ announced September rate initiatives and the TSA guideline adjustments, there will be a reasonably compensatory baseline in place for the coming contract year, beginning with early contracts coming up for renewal.”
Average freight rates, according to TSA’s revenue index, remain at levels seen in early 2011 despite subsequent increases.
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