TSA: 2010 rates must be restored to 2008 levels
Transpacific ocean carriers on Tuesday laid out a plan to increase freight rates in the 2010-11 contract year, saying rate hikes and better recovery of equipment and fuel-related costs are absolutely critical after a year in which every major carrier is expected to post significant losses.
The 14 members of the Transpacific Stabilization Agreement said they have adopted voluntary guidelines for the upcoming service contracting season aimed at substantially restoring rates closer to 2008 levels.
'The guidelines represent an effort not only to reverse a sharp decline in rates during early 2009, but also to fully recover volatile equipment and fuel-related costs,' TSA said. 'At the same time, carriers are taking their case for rate restoration to the shippers and regulators well in advance of the 2010 contracting season. Carriers understand they need a different approach, and need to work with shippers more closely to help them understand the challenges facing the industry and the implications for global trade.'
Specifically, the guidelines call for lines to institute general rate increases of $800 per FEU for Asia to U.S. West Coast shipments, and $1,000 per FEU for intermodal and U.S. East and Gulf coasts all-water cargo.
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| Widdows |
The TSA is also recommending a $400 peak season surcharge be implemented from Aug. 1, 2010 'to address higher cargo handling, equipment positioning and contingency planning costs during periods of peak cargo volume.'
Lastly, the guidelines call for 'full collection of fuel and other accessorial charges.'
'Clearly, the industry entered transpacific contracting in 2009 facing truly unprecedented trade conditions, in which cargo demand was deteriorating at an alarming pace,' said Brian Conrad, TSA executive administrator. 'These dynamics produced a panic to maximize ship utilization and maintain market share, leading to a precipitous collapse of rates. Most, if not all, transpacific carriers find themselves operating in the red. It's a situation that is certainly not sustainable over the 2010-11 contract year.'
TSA lines said they are cautiously optimistic about an improving Asia/U.S. freight market in 2010-11, but stressed that it will remain a year of significant uncertainty, in which carriers must concentrate on conserving cash, building a stronger balance sheet, and establishing a sustainable rate environment.
“Our immediate need is to find a path forward that will allow our industry to achieve improved economic results and, in turn, deploy sufficient assets that will support customers' supply chain needs today, and as the market begins to rebound,' said Ron Widdows, TSA chairman and group chief executive officer of NOL, the parent of APL. “The dire situation the industry finds itself in as a result of the unprecedented events that have played out in 2009 must be reversed. Carriers must deliver on the contractual commitments they have undertaken, however a dialogue between carriers and shippers reliant on container shipping in the Pacific needs to begin straight away so all can plan well ahead for the changes that are needed in 2010-11 contracting.'
A couple of TSA members also commented on the proposed plan.
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| Chow |
'No question, the scheduled increases are significant, and we recognize that our customers too, have suffered from the global financial crisis,' said OOCL CEO Philip Chow. 'However, these increases must be viewed in the context of the equally sudden and significant volume and rate declines seen in early 2009. In many cases these recommended increases will only return carriers to where they were in late 2008 in terms of revenue per box. The 2010-11 program reflects a determination, finally, that the race to the bottom on pricing in the transpacific must stop.'
Kenji Mizushima, director and managing corporate officer for liner trade at NYK, a member of the TSA Executive Committee, said lines are now in a position where further cost cutting will have potential long-term service impacts.
“Individual lines and vessel-sharing alliances have cut and consolidated services, and have laid up hundreds of owned and leased ships worldwide during the downturn,' he said. 'Carriers have also moved to reduce their overhead as far as possible. However, those actions were unable to keep pace with the collapse of rates and dramatic reduction in demand. At the same time the basic market characteristics are unchanged — a two-to-one cargo and equipment imbalance will increase as demand resumes, fuel price volatility will continue, infrastructure and environmental costs will rise. The revenue to address those challenges simply isn't in the current rate structure.'
The TSA said it has already held informational meetings with the largest U.S. trade group representing shippers, and with members and staff at the Federal Maritime Commission. Individual member lines have also begun contacting their accounts, to provide an update on the state of the trade and the rationale behind the planned actions.
The TSA added that it would shortly announce a schedule of customer forums across the United States where a greater cross-section of senior carrier and shipper representatives would be available to share ideas and better understand the impacts of the downturn on their respective businesses.
The meetings are part of an ongoing initiative launched in 2007 by the TSA to improve industry-wide relations among container lines and their customers.
“We realize that we as carriers have to be more transparent, more inclusive, and be much more effective than we have been in engaging and communicating more broadly with the shipping community,' Widdows said.
Based on customer suggestions, he added, TSA is also looking at alternative ways to engage with customers, such as through conference calls and webinars.
TSA members are APL, China Shipping, CMA CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping, Hapag-Lloyd, Hyundai Merchant Marine, 'K' Line, Mediterranean Shipping Co., NYK Line, OOCL, Yang Ming and Zim. ' Eric Johnson