Wednesday, February 6, 2013

Container Shipping Alliance Ups Freight Rates Again

(but can TSA Members Hold Their Nerve)
Shipping News Feature

ASIA – US – WORLDWIDE - Here we go again seems to be the stock reaction to news this week that the members of the Transpacific Stabilization Agreement (TSA) are to ‘shore up’ freight rates with an across the board general rate increase on all dry and refrigerated cargo, effective 1 April 2013, in the amount of US$400 per 40-foot container (FEU) to the U.S. West Coast and $600 per FEU to all other destinations. Membership of the TSA of course reads like a who’s who of box shipping groups with Maersk, MSC, CMA-CGM et al all singing from the same song sheet – for now.

With every analyst worthy of the title predicting an oversupply of global capacity in the box trades for 2013 recent talk has all been of mergers with sixth busiest line by TEU, Hapag Lloyd in discussion with Hamburg Süd for the past few months to make a Germanic alliance which would shift the pair up to fourth place in the rankings. The two have a native heritage and might well make a good fit but it is hard to see others of comparable size reaching an alliance. Such takeovers and mergers are nothing unusual in the industry of course but the box carriers on the transoceanic trade lanes are all major players, the idea of subsuming their identity to a rival will have little or no appeal.

The TSA is of course at pains to point out that in these days when phrases like cartel or anti trust immediately attract the Spanish (or European, Antipodean or American) inquisitions, it is merely ‘a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the US’, not Heaven forfend, any sort of price setting mechanism, which as history has proved so many times, it is not. The long drawn out negotiations with contract customers tend to start with a level, yet elevated, playing field for all the carriers but the necessity of maintaining traffic levels to an economically viable level can soften the resolve of even the most level headed salesman.

The TSA is pointing out that freight rates remain below compensatory levels despite previous adjustments, and want to ensure that 2013-14 contract rates contain meaningful net increases relative to 2012 contract levels, in other words pretty much what they were saying last year. The newbuild tonnage orders so confidently placed in the last lustrum are now seeing a steady growth in available space on the oceans and just about everything from scrapping older vessels to slow steaming has already been done to mitigate the costs of sailing with less cargo than capacity.

TSA executive administrator Brian M. Conrad explained that the current level of rates is unsustainable and while current market rates have shown improvement another year of longer term rates at 2012 contract levels, or with only minimal increases will have serious consequences, saying:

“It is essential to carriers’ long-term viability that new contracts include rates that are more closely aligned with current market levels. The week-long Lunar New Year factory closures in Asia tend to pull forward spring shipments, especially among retail customers. This translates into slowing cargo demand after the holidays, and is one of many such inflection points that can erode revenue throughout the year. Carriers are committed to keeping market rates stable over the next 6 to 8 weeks, as the contracting season ramps up."

The ocean carriers are now all under even more increased pressure with some shippers threatening legal action as slow steaming, the most important tool in the box for many of the lines by keeping fuel costs down and vessels occupied, is cited as a cause for missed delivery schedules by exporters and importers alike. The simple fact that overcapacity will produce financial crises unless rates are at levels tolerable to the carriers means that 2013 may prove a very important year for some of the household names in the Transoceanic trades.