Cost recovery dominates TSA contract negotiations
Shipping lines that carry U.S. import cargo from Asia said they are experiencing “early success with cost recovery efforts.”
The Transpacific Stabilization Agreement, which represents 15 major Asia/U.S. container lines, said “costs continue to dominate early discussions toward upcoming 2008-2009 service contracts, which come up for renewal on May 1.”
The group reiterated that its members “are seeking rate increases in their 2008-2009 contracts of $400 per 40-foot container (FEU) to the West Coast, and $600 per FEU for intermodal and East Coast all-water shipments, along with a $400 per FEU peak season surcharge in effect from June 1-Oct. 31.”
TSA carriers also reported progress in their negotiations with customers to recover a greater share of fully accrued bunker fuel costs.
TSA said weighted average fuel prices across the 12 loading ports used by lines in their transpacific services topped $530 per ton on March 10, up from $462 at the beginning of February, and from $295 at the beginning of 2007.
“We have to do better at recovering the full, floating surcharge,” said Brian M. Conrad, TSA executive administrator. “Customers are now acknowledging that, and are beginning to work with carriers on solutions that recognize industry’s need to pass these costs on.”
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Widdows |
“Even with substantial cost recovery, the economics of serving the U.S. market from Asia will still result in a challenging profitability picture for most lines”, said TSA Chairman Ron Widdows, chief executive of Singapore-based APL Ltd.
The group said freight traffic will continue to grow in 2008, on the order of 2 percent to 5 percent by most industry forecasts.
Capacity on the trade is expected to grow only modestly this year.
TSA said some carriers have reduced capacity during the post-holiday winter season to meet demand in other markets, perform routine maintenance and repairs, and cut fuel and other operating costs as cargo demand slowed.
Some of that capacity will be restored by mid-2008, in time for the peak shipping season, but net year-on-year capacity growth for its members for all of 2008 is expected to reach only a modest 3.3 percent.
Some carriers such as Maersk, Mediterranean Shipping and CMA-CGM, have announced vessel sharing agreements, and the TSA said these vessel sharing agreements “will actually produce additional redeployments and a net decline in transpacific vessel space.”
It cited a recent industry presentation by Clarkson Research Services that showed “effective overall capacity growth in the trade — after allowing for vessel loading and infrastructure constraints, slower sailing speeds and other factors — will probably end 2008 in the 2 percent range, in balance with cargo demand growth.”
Demand for ships and favorable rates on other trades such as the Asia/Europe lane, along with marine bunker fuel prices “will likely limit some carriers’ transpacific ship capacity through redeployments, slow-steaming and other cost mitigation initiatives.”
Widdows noted transpacific lines faced mounting fuel, inland transport and equipment positioning costs in the past year, and have responded in the post-holiday period to optimize their transpacific services.
“Rail rates are up 30 percent, with fuel surcharges added on,” he said. “Marine fuel prices have risen more than 75 percent since January 2007. The costs of moving containers through port gateways and the Panama Canal are rising steadily. The result of operating a ship at less than full utilization in that environment — at rates that in many cases barely cover costs, if at all, is clearly not sustainable.”
TSA members reported an average 90 percent to 95 percent utilization to the U.S. West Coast in January-February 2008, and 95 percent or higher for all-water East Coast services.
TSA also noted its carriers face uncertainty over the negotiation of a new contract with West Coast longshoremen by July 1, environmental programs in Los Angeles and Long Beach, and federal requirement that port workers obtain Transportation Worker Identification Credentials or TWIC cards. These all, TSA said, have the potential to create “shortages of trained longshore personnel, trucks and drivers, as well as raising regulatory compliance costs.”
TSA members are APL, 'K' Line, China Shipping, Mediterranean Shipping Co., CMA CGM, Mitsui O.S.K. Lines, COSCO, NYK, Evergreen, OOCL, Hanjin, Yang Ming, Hapag-Lloyd, Zim and Hyundai. ' Chris Dupin