Transpacific carriers forecast flat volumes in 2009
The Transpacific Stabilization Agreement, an association of 15 container steamship lines that participate in the Asia to U.S. container liner trade, said the “the U.S. housing and credit crunch, touching both consumer spending and business growth, is likely to constrain container volumes from Asia to the U.S. well into 2009.”
TSA forecasts that full-year 2008 cargo demand would be off by as much as 8 percent this year compared to 2007, but added it and “many independent analysts, sees a turnaround beginning in the second half of 2009.” the group said. For the whole of 2009, TSA is expecting slight growth of 1 percent to 2 percent.
“Following a series of CEO-level meetings held in Geneva in late September, TSA reported a tradewide 6.9 percent year-to-date drop in Asia-U.S. cargo volumes over January-June, compared to the same period a year earlier — from 3.30 million to 3.07 million 40-foot containers (FEUs),' TSA said. 'Through July, the year-to-date gap widened to 7.5 percent. Historically high oil prices, falling property values and tight credit led to slow back-to-school consumer spending and increased caution in the retail sector for the rest of the year.”
TSA said its members, who carry about 85 percent of the Asia to U.S. transpacific trade, did a little better than the overall trade, seeing only a 1.8 percent decline in liftings during the first half of 2008.
In July and August, when TSA carriers reported an overall 7 percent drop in cargo volumes, vessel utilization remained around 90 percent across all trade segments.
The carriers said they believe strengthening of the U.S. dollar and moderation of crude oil and gasoline prices in recent weeks, along with steps taken by governments in the United States, Europe and Asia, will ultimately inject confidence and liquidity into the global banking and financial system.
“Clearly we’re in a slowdown right now, but just as clearly, the current freezing up of the global credit system is unsustainable,” said Ronald D. Widdows, TSA chairman. “We expect to see an orderly de-leveraging of the financial markets over the next year that will begin to restore confidence with year-on-year cargo demand growth resuming in late 2009.”
Widdows, who is also chief executive officer of Neptune Orient Lines, parent company of APL, said utilization by TSA members is relatively high because in light of current financial conditions in the trade, a number of carriers have decided to trim their cost bases by:
' Consolidating routes and sailings.
' Entering vessel-sharing alliances.
' Laying up ships for maintenance and repairs.
' Returning chartered ships.
' Adding ships to service strings as part of slow-steaming strategies to conserve fuel.
“It’s a safe statement that no carrier is operating profitably in the eastbound transpacific market today,” he stressed. “Rates have not kept pace with operating cost increases, and separate charges to address fuel and other costs have been routinely undercollected in a highly competitive environment. No container line is in a position to run a scheduled service with ships running at less than full utilization, given current costs.”
An internal survey of TSA lines that measured total collected bunker charges relative to bunker fuel costs, as reflected in the TSA bunker surcharge calculation formula, revealed that TSA lines failed to collect an estimated $299.1 million over the period of May-July 2008.
TSA Executive Administrator Brian M. Conrad further noted that collection of inland fuel surcharges have remained static since the beginning of 2007, while U.S. highway diesel fuel prices, on which the surcharge is based, rose from $2.58 per gallon in January 2007 to $4.76 per gallon in July 2008. Highway diesel price increases are further compounded by higher rail and truck surcharges paid by container lines as the lead logistics providers in an international move. A typical situation involves customers directing their individual carriers to use specific trucking firms, which in turn use that leverage to raise their fuel surcharges to the container lines. Those charges are often not fully charged back to the shipper. Over the past 20 months, TSA estimates that member lines collectively lost another $680 million in undercollected inland fuel costs.
“The Asia-U.S. trade is a dynamic, highly competitive market; it’s easy to lose track of cumulative concessions made to customers in contract negotiations or to address specific needs throughout the year,” Conrad said. “But those concessions add up, and with fuel the largest single cost component in a scheduled container service, they eventually take a serious toll on every carrier’s financial viability.”
Conrad added that TSA lines are looking ahead to continued increases in non-fuel operating costs in 2009-10, driven primarily by higher rail intermodal charges, local and inland equipment repositioning costs, equipment maintenance and repair expense, rates charged by Asian feeder services, and labor costs in the United States.
Niels Erich, a spokesman for the TSA, said that in contract negotiations carriers are likely to continue to seek further recovery of bunker costs, but he said there is likely to be a strong focus on recovery of inland fuel costs.
TSA said it recently refined its bunker charge formula, which it will be rolling out for application in new contracts. The new formula, in part a response to customer input, is based on fewer variables and establishes separate East and West coasts charges
TSA members are APL, China Shipping Container Lines,
CMA-CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping Co., Hapag-Lloyd, Hyundai Merchant Marine, 'K' Line, Mediterranean Shipping Co, MOL, NYK Line, OOCL, Yangming Marine Transport and Zim Integrated Shipping Services. ' Chris Dupin