TSA renews call for rate hikes

TSA renews call for rate hikes       Member carriers in the Transpacific Stabilization Agreement said Monday they will continue to pressure shippers for $800 per 40-foot container rate hikes to the U.S. West Coast during ongoing service contract negotiations.
   The TSA held chief executive officer-level meetings in Taipei last week and 'reiterated their support for the recommended TSA guideline rate increases,' which also includes a hike of $1,000 per 40-foot container for cargo moving to U.S. East and Gulf coasts, as well as U.S. interior points, via all-water or intermodal services.
   The lines have taken heat from shippers for their concerted effort to raise rates this year to what carriers consider sustainable levels. At a recent container shipping event in Southern California, shippers seemed most upset with the pace at which carriers were trying to increase rates (not to mention that shippers were being asked to accept slower transit times and insufficient active capacity as rates spiked).
   But in its message Monday, the TSA said rates are still nowhere near where they need to be.
   'Even if the scheduled increases are fully achieved, that will at best restore some but not all freight rates to late 2008 levels, which were viewed at the time as barely compensatory,' TSA said. 'Container lines in aggregate lost, by various estimates, $15 billion to $20 billion in 2009 worldwide as the direct result of falling demand and a corresponding decline in rates, and liner shipping industry return on capital invested fell to -6.5 percent.'
   Rates have improved in recent weeks, though that appears to be largely a result of increased inventory restocking prior to the Chinese New Year, and not a lasting economic recovery fueled by consistent growth in demand. Also, as container lines hammer out contracts with shippers, the prospect of new capacity hovers over the transpacific trade, threatening to undermine the way alliances have endeavored to match supply with demand.
   TSA said it was forecasting 6 percent to 8 percent cargo growth for 2010 on the transpacific, but noted that 'market conditions remain uncertain in the Asia/U.S. trade, and that revenues are still well below sustainable levels.' Transpacific demand fell by more than 15 percent in 2009, while rates fell by one-third to more than half, depending on commodity and routing, TSA said.

Kim

   'Transpacific container lines took dramatic, emergency steps to cut costs and preserve basic service levels during a period of unprecedented turmoil,' said Y.M. Kim, TSA chairman and Hanjin Shipping CEO. 'In the process, freight rates fell to unsustainable levels that were locked into 12-month contracts. The key to reinvestment and service expansion in the trade is a sustained increase in cargo demand, accompanied by return to a viable, compensatory rate structure.'
   Kim said lines are still losing money on the transpacific and may seek better returns in other trades.
   Meanwhile, the TSA also addressed the issue of space and equipment shortage for shippers, a topic that's captured the attention of the Federal Maritime Commission and members of Congress.
   'The chief executives stressed that they are well aware of, and are committed to addressing, the short-term difficulties that arose in Asia in the run-up to the Lunar New Year holidays and factory closures,' TSA said. 'The situation of tight space and rolled cargo on some sailings, they indicated, was due to sustained post-holiday consumer demand in the U.S., and an urgent need for retail restocking, and has already begun to ease.
   'It is expected that specific service issues will be resolved by individual carrier actions as they redouble their efforts to improve their services working together as partners with their customers. Longer-term questions about restoration of assets and services in the Asia-U.S. trade will be a function of demand trends in coming months, and carriers' ability to restore transpacific revenues to stable, compensatory levels.'
   TSA Executive Administrator Brian Conrad said the organization would have a better picture of the industry once carriers lock in contracts with their customers.
   'The market forecast that matters most will be found in the volume commitments, service features and rate levels negotiated in upcoming contracts,' Conrad said. 'That is what will ultimately drive internal carrier decision-making in the months ahead.' ' Eric Johnson