TSA interim rate hikes would bridge gap
Members of the Transpacific Stabilization Agreement on Tuesday said they will seek emergency rate hikes in the first half of 2010 to increase revenue ahead of spring contract negotiations with shippers.
TSA's 15 carriers (including the pending acceptance of Maersk Line) say they will increase rates by $320 per 20-foot container, $400 per 40-foot container, $450 per high-cube 40-foot container, and $505 per 45-foot container, beginning Jan. 15.
The emergency revenue charge, as TSA is calling it, would expire upon execution of new contracts in spring 2010. TSA previously announced its members would in spring seek rate increases of $800 per 40-foot container for shipments from Asia to the U.S. West Coast and $1,000 per 40-foot container for all-water and intermodal shipments.
They say the interim rate hike is desperately needed to aid lines that will suffer collective losses on the order of $20 billion in 2009. TSA said lines 'cannot afford to carry current rates forward another six months until the new round of 2010-11 contracts is signed.'
The lines say they will be engaging with customers in various ways depending on how their contracts are structured, applying the interim increase where contract terms allow, and seeking to negotiate reopening of contracts that do not provide for interim adjustments. The TSA guideline recommends that early bids or new contracts with early start dates prior to May 1 be quoted with the full, previously announced general rate increase.
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| Widdows |
TSA Chairman Ron Widdows said in a statement that the agreement's members realize the proposed hikes won't go down well with shippers.
'Taking this step now, as many shippers face the stress of an economy that is still a long way from recovery, is not what carriers would have preferred,' he said. 'But without some improvement in the economics of this trade in the very near future, they will be left with some very tough choices that involve either moving even more aggressively to individually consolidate or reduce the number of services now offered, or incur further losses that in the longer term are simply not sustainable.'
The recommended rate hikes — both the emergency increase announced Tuesday and the previously announced spring increase — are not binding. Rates on the transpacific are decided by shippers and carriers in confidential negotiations in accordance with the U.S. Ocean Shipping Reform Act of 1998.
In spring 2009, for instance, TSA members were unable or unwilling to hold firm on viable rates, leading to a downward spiral that cost each carrier millions of dollars. TSA leadership acknowledged that failure in mid-2009 and has urged carriers to push for sustainable rates going forward. The agreement was bolstered in recent weeks by the pending arrival of Maersk Line as its 15th member, meaning the organization now has under its guidance every major container line operating on the transpacific other than Japanese line MOL, which left in early 2009.
The TSA also said Tuesday it is seeking to amend its agreement on file with the U.S. Federal Maritime Commission to provide members with authority to discuss slow steaming or other environmental initiatives that would enable the industry to reduce emissions and operating costs.
'Moving our industry down the path of a more proactive approach to emissions reduction will yield important benefits for shippers, carriers, ports and communities over time,' Widdows said. 'That is why we are seeking the support of the shipping community and the FMC, so that TSA carriers can engage in a dialogue that approaches this critical issue in a more effective way.'
TSA said bunker costs have increased 81 percent since the beginning of 2009 — a factor that adds more than $520,000 to the cost of a single Asia sailing to the U.S. West Coast, and nearly $720,000 to a single East Coast all-water sailing.
Members said they have reaffirmed their commitment to assess the full, floating TSA guideline bunker charge of $348 per FEU to the West Coast and $689 per FEU to the East and Gulf coasts, beginning Jan. 1, and to similarly apply the full charge to subsequent contracts.
So transpacific shippers should expect to see rates and surcharges escalate in the new year.
'We're looking at the ERC as a bridge to get carriers through the first half of 2010, recognizing that the current rate levels do not adequately cover the cost of operating assets in this trade,' said Jack Yen, president of Evergreen Marine Corp. and a member of TSA's executive committee. 'Without this additional revenue, along with further steps to lower operating costs, carriers will continue to lose millions of dollars on a daily basis.
'While the U.S. economy is showing signs of bottoming and gradual recovery, the slight uptick in volumes makes little difference due to the excessively low rate levels that now prevail in the trade. The transpacific customer base relies heavily on the container transport infrastructure to provide reliable, time-sensitive, value-added supply chain services. As an industry, we're sending out an SOS to the shipping community with this emergency charge.' ' Eric Johnson