Wednesday, May 6, 2015

TRANSPACIFIC RATE INCREASE, PEAK SEASON SURCHARGE

Even if the carriers are able to implement such an increase--in light of existing contracts--will they turn around and give the increases away--as been their history--and why they are in such financial struggles?


NEWS FLASH: Transpacific liner companies seek hefty rate hikes

Members of the Transpacific Stabilization Agreement are recommending two $600 general rate increases and a $400 peak season surcharge.

   The 15 container carriers that belong to the Transpacific Stabilization Agreement (TSA) and move nearly all the container traffic between the Far East and U.S. are recommending $600 per 40-foot container (FEU) general rate increases on both June 1 and July 1, as well as a peak season surcharge (PSS) of $400 per FEU that would take effect on July 1.
   The increases are intended to counter recent erosion in market rates, while the PSS will help cover contingencies from seasonal cargo surges, according to a statement from TSA.
   If the carriers are capable of raising rates by the full $1,600, it would represent a nearly 90 percent increase in rates from the Far East to the U.S. West Coast.
   A panel of carriers and forwarders who estimate spot freight rates for the Shanghai Shipping Exchange's Shanghai Containerized Freight Index last week pegged the spot rate from Shanghai to the U.S. West Coast at $1,783 per FEU and to the U.S. East Coast at $3,605 per FEU.
   TSA said its members are reporting 3 percent year-on-year first quarter cargo growth from Asia to the U.S., and "foresee an even stronger second quarter and a continuing need to improve revenue and restore service levels as the West Coast congestion situation eases."
   "The entire transportation and logistics sector is still digging out from a very difficult period, and all parties are eager to return to a more stable, predictable environment in moving goods to market," said TSA executive administrator Brian Conrad. "We’re fortunate that the U.S. consumer remains strong, port throughput is improving, and operational chokepoints have eased. But it must be remembered that baseline service levels come at a cost."
   Conrad emphasized that while overcapacity in the market will likely remain a consideration through 2016, it will not represent a major challenge.
   Responding to recently reported analyst forecasts predicting more than 20 percent overcapacity on U.S. East Coast services and downward pressure on freight rates, Conrad pointed out that in several aspects the underlying capacity analyses were based on faulty assumptions. These analyses, according to Conrad, used the nominal shipyard-rated capacity of new vessels entering the trade and not the effective capacity after adjusting for vessel loading, berth and terminal capacity and other factors; double-counted services launched as much as a year ago as new, including services carrying significant cargo from the Indian Subcontinent or other out-of-scope cargo; overlooked the longer-term shift in demand to East Coast and Gulf Coast services, particularly via Suez; and assumed that most traditional West Coast traffic will return to West Coast ports once the current congestion situation ends.
   "Our carriers see a very different set of facts on the ground," he said, "with perhaps a 15 percent net capacity increase in a market segment that grew by 10 percent last year and by an annualized 22 percent in the first quarter – nearly half of that the result of organic growth, not congestion-related cargo diversion." Conrad added that East/Gulf Coast vessel utilization remains in the 95-100 percent range as of mid-April, and that lingering uncertainty over how much discretionary cargo shippers will resume moving via the West Coast makes it essential that carrier be prepared for contingencies going forward.
   TSA members include APL, China Shipping, CMA CGM, COSCO, Evergreen, Hanjin, Hapag-Lloyd, Hyundai, “K” Line, Maersk, MSC, NYK, OOCL, Yang Ming, and ZIM.