TSA lines seek ‘meaningful recovery’ in spring rates

   Member ocean carriers in the Transpacific Stabilization Agreement said Thursday they will seek cumulative rate increases of $800 to $1,000 per FEU between March 15 and May 1, ahead of annual eastbound transpacific service contract negotiations in spring.
   The rate increase guidelines follow what TSA called a “successfully implemented” interim rate increase on Jan. 1.
   TSA lines will first seek a $300-per-FEU hike on March 15, followed by increases of $500 per FEU to U.S. West Coast ports and $700 per FEU to all other destinations from May 1.
   “The March general rate increase is intended to bring Asia-U.S. freight rates back up to near 2011 contract levels, establishing a baseline for upcoming contract negotiations,” the organization said in a statement.
   TSA cited recent investor filings and press reports affirming industry losses, and stressed that a further increase is “critical to carrier viability going forward.”
   The lines also indicated that further additional revenue and cost recovery initiatives would be considered for later in the year, after a review of market conditions and outlook for the second half of 2012.
   Lastly, carriers reaffirmed the need for 2012 service contracts to apply per formula rate increases for all equipment sizes, and to provide for collection of full, floating fuel surcharges and other applicable cost-based ancillary charges.

Conrad

   “The erosion in transpacific rates during 2011 has been well-documented and dramatic,” said TSA executive administrator Brian Conrad. “If carriers adopt a marginal increase that only partially offsets huge losses as costs continue to rise, the result is another 18 months of losses. This year, in particular, rate recovery must be meaningful in order to maintain service levels and, ultimately, carrier viability.”
   Conrad said customers should not assume winter season spot rates on isolated route segments to set contract pricing through mid-2013.
   “While there may be excess global capacity, infrastructure constraints continue to limit vessel size and utilization,” he said.
   On the cost side, he added, bunker fuel prices have exceeded $700 per metric ton since the beginning of the year, and West Coast prices in particular are approaching the record levels seen in mid-2008. In addition, improved employment, income, housing and consumer spending numbers suggest improved demand in the coming year.
   “There has been a lot of uncertainty in the market and we should not assume the challenges are behind us,” Conrad added. “Still, indications look generally positive for a recovery in the trade, making it all the more important for shippers and carriers to coordinate their forecasting and plan for contingencies, and for carriers to adequately manage and recover their costs.”
   Research from American Shipper affiliate ComPair Data shows that current eastbound transpacific allocated capacity – that is, capacity ComPair Data estimates is available on the trade – has dropped more than 15 percent in the last year. Most of the withdraw of capacity occurred in the last three quarters of 2011.
   Meanwhile, an American Shipper survey in late January of eastbound transpacific shippers found that 80 percent of shippers saw their rates increase from Jan. 1, but 60 percent said they expected rates to fall in the weeks after the Chinese New Year, which took place in late January. That suggests transpacific carriers might have a difficult time convincing shippers to agree to the rate increases they say are required. — Eric Johnson