Thursday, July 12, 2012

Conundrum of Container Shipping Rates as Freight Tariffs Rise - Again

Transpacific Increases Announced for Next Month
Shipping News Feature

US – ASIA – It is one of the curious facets of the ocean container shipping trade that even the most hardened and experienced industry executive can continue to be puzzled by the question we posed in an article in February - When is a Container Shipping Rate Agreement a Freight Cartel? It seems to many that whilst the bastions of the transatlantic trade were forced by EU pressure to ensure no forms of tariff or surcharge agreements were in place, routes across the other great ocean, controlled by basically the same companies, could continue unaffected.

According to the Transpacific Stabilization Agreement (TSA) this week many of its members, which means just about every major box carrier from Maersk, MSC and CMA CGM to Yangming Marine and APL, have multilaterally announced in the past week cargo rises for implementation in August ranging from US$500 per 40-foot container (FEU) to the U.S. West Coast and $700 per FEU for all other shipments.

In addition the TSA says the expense of running reefer containers means it is recommending a rise in refrigerated box rates of $1,000 per FEU to the U.S. West Coast and $1,250 per FEU for all other destinations with effect from 15th August 2012. According to the group the purpose is ‘to stabilize recent volatility, boost rates to better accommodate growing demand, and establish a more compensatory baseline for subsequent negotiation of 2013 longer-term contracts.’ TSA executive administrator Brian M. Conrad, is unequivocal when speaking of the need for increases saying:

“Carriers across the entire trade are determined to maximize yield from ships they expect to approach full utilization throughout the summer months. Too much is at stake in 2012 for the lines, their investors, their creditors and their suppliers and vendors to leave money on the table after sustaining heavy losses in two of the last three years, and amid strengthening demand.”

There is no doubt the carriers have suffered gravely in the past couple of years after the surpluses made in the middle of the decade but many would say their problems now are partly as a result of poor management and investment decisions and the trade must accept the constriction of cargo made worse by their own stampede for extra capacity. Many carriers will point out in their defence that even the perceived agreements on the Pacific routes are in fact only that, tacit and open to interpretation and negotiation.

Certainly shippers on these transpacific routes will not wish to feel that the container lines are viewing them as a cash cow to help balance the difficulties which those who set the rates feel have been imposed by the authorities on the Asian – European services. Unsurprisingly when we have spoken to industry insiders about the situation even the most voluble of the shipping line and freight association executives are reluctant to have their opinions assigned on the record, which in its own way, speaks volumes.