NEWS FLASH: TSA seeks to shore up rates; impose hefty GRI in January
The Transpacific Stabilization Agreement's 15 members plan a $1,200-per-FEU rate hike on Asia-U.S. West Coast trade Jan. 1 and want a minimum rate of $1,700 per FEU to the U.S. West Coast in 2016-17 contracts.
The TSA lines are recommending adjustments to minimum rates across the board on Dec. 1 and a GRI on Jan. 1, 2016.
For Dec. 1, the lines will be seeking to restore the lowest current market rate levels to at least $950 per 40-foot container (FEU) to the U.S. West Coast; $1,700 per FEU to the U.S. East and Gulf coasts; and $2,950 per FEU for intermodal moves to key Chicago-area inland point destinations.
The announcement came on Friday, after the Shanghai Shipping Exchange said the Shanghai Containerized Freight Index (SCFI) estimated the spot rate from Shanghai to the U.S. West Coast was $922 per FEU, down 9 percent from $1,009 last week. The SCFI is estimated once a week on Fridays by a panel of carrier and forwarding executives.
Richard Ward, a container derivatives broker at Freight Investor Services, said in a statement the SCFI rate to the West Coast was "a new all-time low on the trade. This represents the first time that the trade has been under the physiological $1,000 mark since August 2009 having been in nearly constant freefall since the end of the port congestion debacle at the start of the year."
The SCFI pegged the rate from Shanghai to the U.S. East Coast on Friday at $1,688 per FEU, down 8 percent from $1,834 per FEU a week earlier.
For Jan. 1, TSA members are recommending large general rate increases - $1,200 per FEU to the West Coast and $1,600 per FEU to the East and Gulf coasts. That's about a doubling of the spot rates.
Carriers say their objective is to "establish more compensatory baseline revenue levels as they head into service contract negotiations, and in advance of the Lunar New Year holiday in Asia that begins in early February."
"Transpacific lines are adjusting to a new normal of larger ships and complex alliances, necessitated by cost and environmental compliance pressures – all in the context of an uncertain global economic environment,” explained TSA Executive Administrator Brian Conrad. "Irrespective of cyclical supply-demand issues, it is critical that these global infrastructure providers get their pricing right and fully recover their costs through meaningful, staged rate increases heading into 2016."
Most service contracts in the transpacific trades run from May 1 to April 30.
For all 2016-17 service contracts, TSA lines are recommending longer-term minimum rates of $1,700 per FEU to the West Coast and $2,900 per FEU to the East and Gulf coasts.
That is actually less than the recommendation for the current contract year. For the 2015-2016 service contract year, the TSA had recommended minimum rates of $2,000 per FEU for cargo moving from North Asia to the U.S. West Coast and $3,800 per FEU for cargo moving to the U.S. East and Gulf coasts. The recommendation was that rates be $150 higher for cargo moving from South Asia ports.
TSA said for the coming contract year it will include adjustments to "non-rate charges and practices in areas such as absorption of chassis costs; free-time allowances; port and rail demurrage charges; equipment detention and per diem; full recovery of current and projected trucking costs; intermodal pricing; credit policies; and contract boiler plate terms."
"Lines have learned the hard way that small concessions to a customer here and there expand quickly across the trade and add up, over time, to a lot of money left on the table," Conrad said. "Beyond that, addressing these non-rate items will also help to improve equipment velocity and availability, toward a more efficient and robust supply chain."
TSA said the fact that its members are using larger line-haul vessels making fewer port calls means that they have higher feeder service and other transshipment costs in maintaining route coverage throughout Asia. “Lines will be closely reviewing their schedules of feeder port add-ons in light of rising costs, and will make specific adjustments to those add-ons as warranted in upcoming contracts,” TSA added.
The TSA's members include APL, China Shipping, CMA CGM, COSCO, Evergreen, Hanjin, Hapag-Lloyd, Hyundai Merchant Marine, “K” Line, Maersk, MSC, NYK, OOCL, Yang Ming, and Zim.