TSA winning fuel recovery battle, capacity cutbacks boost utilization
Supply and demand balance will take a back seat this year as the key driver of transpacific prices as carriers focus on addressing rising fuel and other operating costs to improve profitability, according to Ron Widdows, chief executive officer of APL and chairman of the Transpacific Stabilization Agreement.
The TSA, a discussion group of 15 ocean carriers in the Asia-to-U.S. trade, said Thursday its member lines are “seeing widespread success in achieving needed fuel surcharge increases,” while they expect to increase their aggregate capacity in 2008 by an average 2 percent to 4 percent after recent tonnage withdrawals.
TSA lines in November recommended that its members start including a “full floating bunker surcharge” in all new service contracts in order to mitigate the steep rising cost of bunker fuel. The carrier group at the time estimated a more than $5 billion gap between what its members spent on marine bunker fuel from February 2006 through August 2007, and the total fuel surcharges they collected for the same period.
Widdows said in a statement released Thursday that the recent fuel surcharge increases achieved by lines are “gratifying, as it indicates that customers understand the financial pressures affecting our industry and the need for carriers to make an adequate return in order to maintain levels of service the shipping community expects.”
However, he added that those fuel recovery gains do not go all the way, and the TSA’s objective for 2008-2009 remains restoration of full bunker fuel surcharges, based on TSA's calculation formula, which float with monthly price fluctuations. Such a method is required, the TSA argues, because the oil market remains highly volatile with future prices being impossible to predict.
Transpacific shipping lines have of late attempted to counter the effect of record fuel prices by slowing ships and adopting other operational maneuvers such as redeploying vessels to more lucrative trades and laying up vessels for maintenance. Widdows said those measures all helped TSA lines achieve higher vessel utilization at the end of 2007. For September through December, TSA carriers reported an average 94 percent utilization via the West Coast and 91 percent via East Coast all-water services.
“The numbers are telling us that although transpacific growth did moderate during 2007, utilization has remained relatively high during the winter season,” Widdows said.
Such was the exodus of tonnage from the transpacific at the end of last year and start of this one that the booming Asia/Europe trade has for the time overtaken the Asia-to-North America lane as the world's largest deep-sea trade in terms of vessel capacity. The latest World Liner Supply report from American Shipper's sister company ComPair Data reveals that nominal vessel capacity in the head-haul eastbound transpacific trade decreased 5.4 percent in the period from Oct. 1, 2007 to Jan. 1, so that it now has roughly 342,000 TEUs in weekly one-way capacity. In the same timeframe, the westbound Asia/Europe trade gained 5.1 percent to about 354,000 TEUs in one-way capacity.
TSA cautioned that its anticipated aggregate transpacific capacity growth of up to 4 percent during 2008 could shrink “if economic conditions do not improve and carriers scale back operations further.”
“It can be a costly proposition for lines to shift vessel assets, or to modify routes and schedules,” Widdows added, “but Asia/U.S. carriers really have no option but to fine-tune or even scale back services absent significant improvement in the economics, and with fuel prices topping $500 a ton.”
TSA’s revenue and cost recovery program for the 2008-2009 contract season includes:
' Freight rate increases of $400 per FEU for U.S. West Coast port-to-port and door cargo, and $600 per FEU for all other traffic, including intermodal and U.S. East Coast all-water shipments.
' Restoration of a floating bunker fuel surcharge in all contracts that have had bunker surcharges mitigated, capped or folded into base rates.
' A $400-per-FEU peak season surcharge in effect from June 1 through Oct. 31, 2008.
TSA said its members are reporting strong forward bookings in the run-up to the Lunar New Year factory holidays in Asia, and are preparing for potential cargo surges heading into March and April as shippers try to assure space in advance of the Olympic games in Beijing, and the beginning of U.S. West Coast longshore labor contract talks.
It added that other issues that could increase fee-based costs, as well as create driver shortages and service disruptions, are the joint clean truck program at the South California ports of Los Angeles and Long Beach, and the federal Transportation Worker Identification Credential (TWIC) program.
“We will be monitoring the market very carefully in the early part of this year,” said TSA Executive Administrator Brian M. Conrad. “We know that, overall, cargo growth will be slower, perhaps on the order of 3 percent to 5 percent during 2008, and that supports lines' individual decisions to redeploy new and existing ships to intra-Asia, Asia/Europe or Latin America. At the same time, many analysts forecast a turnaround in the U.S. economy later in 2008, and lines see the potential for volatility, beginning in late spring and continuing into the peak season due to some very significant, one-time events.”
TSA member lines are: APL, “K” Line, China Shipping Container Lines (from January 2008), CMA CGM, Mediterranean Shipping Co., COSCO Container Lines, Mitsui O.S.K. Lines, Evergreen Line, NYK Line, Hanjin Shipping, OOCL, Hapag-Lloyd, Yang Ming, Hyundai Merchant Marine and Zim. ' Simon Heaney