TSA hikes unleash Asia shipper fury

TSA hikes unleash Asia shipper fury       It was in mid-December that Transpacific Stabilization Agreement carriers announced they would seek an emergency revenue charge (ERC) for shipments beginning in mid-January.
      But it took until the carriers started actually pressing for those rate hikes ' which TSA justified as bringing rates to more reasonable levels than they were able to negotiate in spring 2009 contract discussions ' for shippers to publicly respond.
      In a scathing critique of the mid-contract increases, the Asian Shippers' Council and its constituent councils decried the manner in which the world's largest carriers were able to rewrite the terms of annual deals.
      'What good are service contracts if shipping lines can just alter them without proper consultation with shippers?' Willy Lin, the shippers' council's convenor for Greater China, said in an ASC statement blasting the rate hikes.
      The ASC said that 'since the beginning of 2009, when the world economy was struggling to recover, TSA members have imposed a string of surcharges, including a general rate increase, bunker adjustment factor and currency adjustment factor. This has pushed the all-in ocean rate for a 40-foot container from Singapore to the U.S. West Coast from $1,500 in early 2009 to $2,500 in 2010 pre-ERC. If the ERC of $400 is factored in, an all-in rate for a 40-foot box is $2,900.'
      John Lu, ASC chairman, added: 'While TSA may be able to exploit its monopolistic position in the Asia/U.S. trade to push through the ERC, what recourse do shippers have?'
      Rather than heed the anger of their customers, however, transpacific carriers are showing real determination to push through rate hikes. Buoyed by gradually increasing demand during what's normally the slowest time of year, and energized by their successful efforts to temporarily redress the supply/demand balance, carriers seem determined not to repeat the mistakes of 2009.
      Members of the Canada Transpacific Stabilization Agreement (which adopted similar emergency revenue charges as the TSA in January) said in early February that beginning March 15, they will raise rates further for container shipments from Asia to Canada.
      Since all CTSA members are also TSA members, look for the TSA to announce a second rate hike ahead of spring negotiations (if it hasn't already happened by the time you've read this).
      It's a strange situation in which shippers find themselves. They know they underpaid for transpacific service last year, and demand now is stronger than 2009 but weaker than 2008. They know a horde of vessels capable of carrying containers are parked. Yet they are told there is a capacity crunch, with cargo being left on the docks of some of Asia's largest ports and carriers reporting utilization percentage rates in the high 90s.
      If carriers are successful in pushing through significant rate hikes in spring ' the TSA is seeking $800 per TEU to the U.S. West Coast ' that will have taken rates to about the level they were two years ago. But there's every chance that carriers, after the negotiations are finished, could fall into the familiar pattern of market share grabs in the second half of the year. A lot of capacity is due to be delivered and slow steaming can't absorb all the excess capacity that exists today, much less that which is pending.
      Widespread scrapping ' and we're talking about hundreds of thousands of slots being wiped away ' is about the only way the supply/demand gap would be truly be bridged.
      In the meantime, Asian exporters will continue to be outraged by their relative lack of clout in the ocean freight chain. High-volume importers may continue to get favorable contract terms, but export shippers (their suppliers) will feel the squeeze of higher rates and surcharges because demand isn't quite so high to justify those rates yet.

Did some lines deserve to fail?
      As it appears that many of the lines perched on the precipice in 2009 have indeed made it through the worst of the storm, there's building sentiment about how these lines' survival might affect the liner trade's recovery.
      The question is whether lines that managed the crisis well and didn't need outside government or creditor intervention should be penalized for doing so (incidentally, I'm not referring to lines that managed to raise cash through issuing bonds, shares or rights to investors, as those mechanisms were internal).
      The theory is, if several lines that sunk deep into the red and required bailouts had gone out of business, it would have helped the remaining lines, who would secure the business lost by the bankrupt lines.
      It's an issue we've addressed recently ('Shipping's not fair,' January American Shipper, page 22, or online at www.AmericanShipper.com/links). But in that instance, it was other carriers and ship owners making the case. More recently, analysts (seemingly objective, and with no skin in the game) have brought up the same issues as they try to forecast what will happen in 2010.
      'Taking a step back, although things are looking up we need to consider the caps to the upside that exist coming from 1) excess tonnage of some 1.5 million TEUs in January 2010 (even if some will never come back ' a good portion will come back), and 2) excess players who were bailed out and who remain as competitors when they should have been wound down before emerging from restructuring,' Charles de Trenck, head of the Hong Kong-based transport advisory firm Transport Trackers, wrote on Jan. 28. 'This process would have reduced their business volumes more and given the real survivors their edge.'
      Neil Dekker, editor of Drewry Shipping Consultants' Container Forecaster, wrote in mid-December: 'Our assessment in June was that the container industry would lose about $20 billion this year, and in this environment it is difficult to believe that there will not be more casualties. It is a very debatable point whether or not CSAV, Hapag-Lloyd and Zim have effectively gone bankrupt this year, but fortunately for them, they have been bailed out.'
      Analysts who cover the industry can only look at the information in front of them and try to decipher what it means. At the beginning of 2009, they all saw a huge amount of capacity coming online, with declining demand. They also saw the balance sheets of a few carriers, added the totals up and figured some lines would likely go out of business. But analysts aren't always able to calculate the unknown variables, like how willing a government or creditor is to salvage a failing business.
      Perhaps the reason analysts are calling attention to the idea that some lines should have gone under last year is to justify their forecasts from 12 months ago. But more likely, it's an objective forecast that because those lines didn't fail, the rest of the industry might suffer a little more in 2010.