Pacific carriers to consider pass-through of cost increases
The Transpacific Stabilization Agreement (TSA) carrier group warned today its shipping line members may have to pass on to shippers increases in the costs they face from ports, railroads and other subcontractors.
Without specifying the amounts of the cost increases, the TSA said its shipping lines “have already received indications from ports, terminal and feeder service operators, rail and truck vendors and others, of higher rates and special charges in the coming year, to help fund capital and service improvements.” Carriers “cannot simply absorb those costs,” the carrier group said, and part of the increases will have to be passed on to shippers and over time.
The TSA has already announced plans to raise rates May 1.
“Lines are beginning to talk of reserving the right to come back later in the year with further rate increases and/or cost-based charges to cover a wide range of emerging operating expenses,” it said today. Among these are:
* Special port security and congestion fees.
* Delays or added handoffs resulting from rail container embargoes.
* A dramatic increase in Panama Canal fees.
* New cargo inspection regimes.
* Added equipment costs as eastbound vs. westbound cargo and equipment imbalances widen.
* Lost opportunity costs from skipped port calls and other vessel deployment changes caused by terminal congestion in the U.S. and Asia.
TSA carriers executives are meeting in Seattle this week. They believe there are mounting operating cost pressures in the fast-growing transpacific freight market, partly due to infrastructure restrictions.
'The intermodal infrastructure is already feeling capacity strains, and we expect another 10-12 percent transpacific cargo growth in 2005, to some 5.8 million 40-foot containers,” said Brian M. Conrad, deputy executive director of the TSA. Ocean carriers “are on the receiving end” for higher costs invoiced in the supply chain.
Conrad emphasized that new, larger vessels to be delivered in 2005 and 2006 will be sharply limited in their actual carrying capacity without deeper channels, longer berths, faster cranes, larger container handling facilities and smooth rail connections once those ships reach the United States.
Rail velocity throughout the United States in 2005 is expected to fall to levels below those seen during 2004, even as cargo volumes increase, Conrad added.
“Our concern is that trade growth could continue to outpace overall infrastructure capacity for another two years,” he said. “In the meantime, the cost and planning burdens will increase simply to maintain existing service levels, let alone expand them.”
Ocean carriers have issued several warnings to the industry that they expect infrastructure congestion on the U.S. West Coast to continue during the forthcoming peak season, providing another reason for shippers to take a serious look at changing their transpacific supply chain planning. Some carriers have also warned that port delays will effectively remove some of the productive ship capacity offered to the market.