U.S. agricultural shippers deplore Pacific rate increases
U.S. shippers of agricultural goods to Asia attending the Agriculture Ocean Transportation Coalition annual meeting last Friday in San Francisco told carriers large freight rate increases and a decline in service levels make it more difficult for them to find markets in Asia.
Regarding liner carrier rate increases, Hayden Swafford, executive director of the Pacific Northwest Asia Shippers Association, told carriers to “temper” their actions. “As you increase your rates, you diminish our ability to compete in the global market.”
“If lumber prices are too high from the U.S. to Japan, (Japanese buyers) will go somewhere else,” Swafford warned. “Shippers will switch markets if price becomes too high.”
Diane Eicher, a manager for produce exports at freight forwarder Coppersmith, told carriers, “it’s great you can divide up (rate increases) by pennies per orange, but it’s a big shock when your customer gets a $600 charge on their container.”
“Rates are already all over the place,” she added. “It’s total chaos in the market.”
Sheila Bracken, manager of transportation and export operations for Allenberg Cotton Co., based in Cordova, Tenn., cited the problems with diminishing carrier customer service levels. “Our reputation as an on-time supplier is diminishing quickly,” she said.
“There’s nothing produced in the United States that can’t be produced in multiple countries around the world,” Bracken said. “What we’re trying to do is keep transportation costs competitive for ag shippers.”
Transpacific carriers of the Westbound Transpacific Stabilization Agreement have already raised westbound rate this year on some commodities and are seeking to increase prices in June and July on other commodities such as citrus, apples and pears. They have postponed westbound rate hikes on beef and poultry for the time being, as U.S. exporters continue to face the impact of import bans on American beef and poultry by Asian governments.
Albert A. Pierce, managing director of the Westbound Transpacific Stabilization Agreement, told the Agriculture Ocean Transportation Coalition meeting that carriers’ costs associated with equipment and cargo imbalances have risen, as well as the cost of chartering containerships and purchasing new containers in China.
“Charter rates have soared, more than doubling in the past two years,” Pierce said. “Daily rates for a 2,900-TEU ship have risen from $11,400 in early 2003 to $31,500 today. One Pacific carrier recently made headlines with a record-setting charter of $43,000 a day for a containership in the 4,000-TEU range,” he added.
Pierce reported that buying a new container today costs 40 percent more than some six months ago, because of a shortage of steel.
“One of our member lines was recently informed by its Chinese container supplier that only half of its latest order could be filled due to the steel situation,” he said. “Container leasing rates have also been rising.”
Pierce suggested that container carriers may no longer accept non-compensatory rates on westbound Pacific shipments.
“Not long ago, carriers and shippers viewed the westbound dry cargo segment as a backhaul market, in terms of pure supply and demand,” he admitted. “With vessel utilization at 50 to 60 percent, any contribution to round trip cost that filled your ship at the expense of your competitor was considered good business.”
But in today’s market, carriers seek to turn the containers fast, and “must be very careful what they load westbound” taking into account factors such as the additional equipment time, handling and cleaning costs.
“If the overarching concern is repositioning for the eastbound load, it may well be more attractive to keep the container empty [westbound],” he said. “No added drayage. minimal cleaning, maintenance and repair, and the box moves directly from the pier in Asia to where it has been promised.”
Pierce said transpacific carriers have revised westbound rates on a commodity-specific basis, coinciding with seasonality and changing market conditions. “Most dry cargo has taken increases of $100 to $200 per forty-foot-equivalent unit, while most refrigerated commodities have seen increases in the order of $300,” he reported.
“In certain cases where minimum rates have been established, the new rates after contracts expire may see larger increases, to offset earlier mitigations and postponements,” he added.