TRANSPACIFIC RATE CONTRACTS

Transpacific carrier rate goal may be 'a bridge too far'

London-based shipping industry consultant Drewry questions whether carriers will be able to charge $2,000 per FEU on eastbound boxes.

By Chris Dupin |Tuesday, April 21, 2015

   Drewry, the London-based shipping consultant, is questioning whether ocean liner companies will be able to obtain the minimum freight rates they are seeking in the transpacific trade.
   While the US economy is “still on course to generate moderate growth in the headhaul trade” for transpacific container carriers this year, ship utilization on services to the West Coast of North America fell from 81 percent in December to 73 percent in February in the eastbound direction, according to the latest issue of Drewry’s Container Insight Weekly. Westbound from West Coast ports to Asia, utilization was 39 percent in February and has only registered above 40 percent in one of the past six months.
   Drewry noted the 15 container carriers that belong to the Transpacific Stabilization Agreement set a minimum contract price at $2,000 per FEU on container cargo going to West Coast ports.
   “That would entail achieving an increase of some $400 over the current average BCO rate, and with prevailing spot rates at $1,600 this would appear to be a bridge too far for the carriers,” said Drewry.
   The consultants speculate, “The pain of losing so much money from the West Coast port congestion is for the shipping lines now receding, and so too with it is the impetus to secure the minimum income levels prescribed for this year’s new BCO contracts.”
   However, TSA said in January its members "report consistently full sailings into the Pacific Northwest and via all-water Panama and Suez routes to the U.S. East and Gulf Coasts, as well as 95 percent utilization or better through California ports hardest hit by congestion. This suggests an overall strong market apart from recent cargo diversion trends, and is consistent with broader indicators of economic growth affecting the Asia-U.S. trade over 2014."
   Drewry said WCNA shipments dropped 22 percent year-over-year in January, but increased 2.6 percent February.
   Just last week, the port of Los Angeles said its volumes in March were 17.3 percent higher than in March last year and the Port of Long Beach said its volumes were up 32 percent for the same period.
   Congestion at West Coast ports and labor-management turmoil during the negotiations for a new contract for the International Longshore and Warehouse Union affected the trade between Asia and the U.S. so that in the first two months of the year, “WCNA demand retreated by 12 percent compared to a 15 percent gain in movements to ECNA and a 5 percent dip in overall Asia-North America volumes. West Coast performance was blighted by an 18 percent fall in US imports while loads bound for Canada and Mexico climbed 13 percent and 22 percent respectively,” said Drewry.