TRANSPACIFIC CONTAINER FREIGHT RATES 2015-2016

Transpacific carriers to try a new approach in trying to improve rates

TSA announces contract rate objectives for 2015-16, differentials for 20-foot and high-cube boxes.

By Chris Dupin |Thursday, October 02, 2014

The Transpacific Stabilization Agreement, the discussion agreement for container carriers in the Asia-U.S. trade, said that it will take a new approach in 2015 to improve freight rates.
TSA said it was announcing “contract rate objectives for 2015-16 rather than scheduled general rate increases from varying baseline levels; rates for 20-foot and high-cube 40-foot containers that more fully reflect cost impacts in loading and handling; full recovery of rising intermodal costs due to inland transport capacity and congestion issues; a revised bunker surcharge formula more accurately reflecting current vessel size and fuel consumption; and recovery of low-sulfur fuel costs as tighter emissions standards take effect in January 2015 for vessels operating in North American coastal waters.”
TSA executive administrator Brian Conrad, said, “Carriers feel an urgent need in the current market environment to view pricing differently. Rate minimums are an effort to better reflect actual costs of service, rather than simply recommending a specific increase to whatever baseline rate is in the tariff based on short-term supply-demand conditions. Rates will continue to fluctuate with the market according to origin-destination pairs, service requirements, routing and so on, but a common base guideline is essential for lines to maintain basic service levels and, beyond that, expand their offerings based on customers’ needs.”
On rates, TSA is recommending that its members seek to conclude 2015-16 contract rates at levels at or above $2,000 per FEU to the West Coast and $3,500 per FEU to the East Coast from all North Asia ports. While some shippers negotiate rates on a calendar year basis, many contracts are negotiated for a "contract year" that begins on May 1 and ends April 30.
For Southeast Asia, TSA said the objective will be to achieve rates at or above $2,150 per FEU to the West Coast and $3,650 per FEU to the East Coast.
Last Friday, the spot rate for cargo moving from Shanghai to the West Coast, according to the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index, was $1,930 per FEU, down $156 from the prior week; to the East Coast, it was $4,085 per FEU, down $213.
TSA noted “intermodal base rates will vary by destination, but as an example, TSA is proposing 2015 CY (container yard) rates to Chicago-area ramps to be at least $3,900 from North Asia and $4,050 for Southeast Asia.
TSA said its members have additionally modified TSA’s formula for other equipment sizes with respect to minimum rates. Base rates for TEUs will be assessed at 90 percent of FEU rates.
It said high-cube FEU base rates for containers that are a foot higher than standard 40-foot containers, which are popular with retailers and other shippers moving lightweight cargo, will be charged a premium of at least $50 over the 40-foot standard rate for West Coast and $100 more than the 40 foot rate for all other destinations.
TSA said, “The changes reflect the greater cost impacts from the handling of different container sizes as load and discharge patterns in port become increasingly complex and time-sensitive.”
The new recommended contract rates will also be subject to the addition of a low-sulfur fuel cost recovery component, which TSA is currently studying and expects to announce in the next several weeks.
Conrad noted the emissions mandate will require ships to use costlier marine gas oil when operating in those areas and “is of special concern because it will hit the trade all at once and no one can predict just yet where prices will settle. That, in turn, makes it difficult to adapt our existing formula, but we expect to have a clearer picture closer to Jan. 1, in time to announce a charge with the necessary advance notice.”
TSA 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.