Conrad: Smaller TP lines a ‘barometer of the trade’

   Last year saw a number of small containership lines drop out of the transpacific trade amid flat demand growth and intense competition.
   The drop-off was notably sharp in the second half, with American Shipper affiliate ComPair Data estimating a 15 percent withdrawal of eastbound transpacific capacity was withdrawn from July.

Conrad

   Last month, American Shipper spoke to Brian Conrad, executive administrator of the Transpacific Stabilization Agreement, about whether the withdrawal of so many service providers on the trade was a good development.
   TSA’s 15 members, incidentally, carry the bulk of trade on the eastbound transpacific, and none of the carriers who dropped out of the trade were TSA members.
   “It’s not appropriate for me to say whether it’s good or bad,” Conrad said. “This has been a phenomenon in this trade in previous years as well. When the market is strong, it attracts new players and niche players. Then they leave the market when it’s not good. These smaller carriers are almost a measure of the strength of the market. When they leave, we assume it’s a symptom of lines looking at their revenue and saying things are not good enough.
   “But a contraction in service is not good for anyone. A healthy trade with good competition is good for everyone,” he added. “It should be seen as a barometer of the health of the industry.”
   On another topic, Conrad said any differences in growth rates between the trades to the U.S. West and East coasts wouldn’t have any impact on carriers’ attempts to increase rates in mid-March and early May. The TSA in February announced two separate rate increase guidelines that collectively call on lines to increase rates by $800 to $1,000 per FEU.
   “It doesn’t impact carrier efforts in terms of getting rates up,” he said. “It really only impacts costs, which is why there’s a difference (on the May 1 guideline) of $700 versus $500 per FEU. I don’t think carriers are thinking of different growth levels. They tend to look at trade as a whole.”
   Other analysts said much the same.
   “There was a slight difference between the all-water and Asia–U.S. West Coast last year, but not a huge difference so I suspect any impact will come more from potential upgraded vessel sizes on the Asia–U.S. West coast services this year,” said Paul Bingham, economics practice leader at the consultant CDM Smith. “That is where the carriers can make more of a difference compared with still running Panamax vessel strings on the all-water routes, however I’m not sure that works in favor of the carriers on the transpacific.”
   The liner carrier Hanjin Shipping told American Shipper it saw stronger growth from Asia to the U.S. Pacific Southwest and all-water routes, compared to a “relatively slow” Pacific Northwest region
   London-based Drewry said the major difference between the two trades is that capacity additions can have a more profound effect on the smaller Asia-U.S. East Coast trade.
   “I am not aware of any notable near term growth rate trend (differences) between U.S. West Coast and U.S. East Coast trades that will impact rates,” said Martin Dixon, research manager for Drewry’s Container Freight Rate Insight. “The driver is more likely to be capacity, which can have a more destabilizing effect on U.S. East Coast rates given the smaller size of the trade. Longer term, the widening of the Panama Canal will have a major impact on relative growth trends and rates.” — Eric Johnson