TSA cites success implementing floating bunker charges
The discussion agreement of carriers moving containerized cargo from Asia to the United States said there has been a “major structural shift” in the transpacific trade, with carriers successfully getting floating bunker fuel charges put into service contracts.
“Transpacific container lines have taken an important step forward in the current round of service contract negotiations with U.S. importers,” said a statement from the Transpacific Stabilization Agreement, which has 15 members.
“Foremost among these is restoration of floating bunker fuel surcharges that are adjusted monthly over the contract term to reflect world fuel price fluctuations, and an increase in the dollar amount of published fuel surcharges that will actually be collected in contracts.”
The TSA said its members are reporting that on average 70 percent of new contracts have been concluded relative to May 2007. It said “well over 90 percent of signed contracts for the coming year contain provisions for a floating bunker surcharge, as well as significant increases in the portion of the full, published surcharge level collected.”
“Given the trajectory of fuel prices, which are approaching $600 per ton and have now more than doubled since the first quarter of 2007, the need for structural change in fuel recovery in the transpacific market was critical,” said TSA chairman Ronald D. Widdows, who is also chief executive officer of APL.
| Widdows |
TSA says the weighted average cost of fuel has climbed from $296.16 per ton in the first week of January 2007 to $582.82 per ton on March 19, 2008.
“We appreciate the understanding of the shipping community that fuel costs are a real and present threat to lines’ ongoing ability to adequately serve this corridor, through which most U.S. trade flows,” Widdows said.
He added that while the industry has largely achieved its objectives relating to the structure of fuel surcharges, profitability in the trade remains under pressure due to higher landside and asset costs.
He said most transpacific contracts included increases to base freight rates, with the strongest gains in the intermodal and U.S. East Coast all-water segments, but added carriers were only able to achieve part of the $400 per FEU increase to the West Coast and $600 per FEU for other destinations that they were seeking.
Overall revenue increases “appear to be settling in the $400 to $600 range” per container, TSA said. That increase includes both the increase from floating in floating bunker structure but before factoring in peak season and other non-fuel ancillary charges, it said.
The increase in overall revenue per container compares to a weighted average fuel cost per FEU of $466 per FEU between January 2007 and mid-May 2008. The average fuel cost is now $947 per FEU.
“Clearly, in the carriers’ view, the priority this year was moving to a floating fuel surcharge structure and the quantum of revenue per unit increase was secondary,” said TSA Executive Administrator Brian Conrad.
'As such, there is more work to be done when the industry returns to the negotiating table in early 2009. The TSA guideline increases reflect higher anticipated intermodal, equipment management and cargo handling costs during 2008, so carriers will be seeking to achieve further base rate improvement next year,” Conrad said.
“The case for higher intermodal and East Coast all-water rates was obvious this year, but still not as well understood as one would think. Intermodal rail costs have grown at a pace well beyond the rate levels achieved by carriers over the last year,” said Jack Yen, Evergreen Line president and TSA executive committee member.
J.S. Lee, also a member of the TSA executive committee and CEO of Hanjin Shipping, stressed, “Carriers view this year’s contract negotiations as the first step in a multiyear process of returning the industry to economics that will generate adequate returns and enable the necessary ongoing investment in transpacific capacity and resources. We have made progress towards that goal, but not sufficient progress to cover the scale of investments required.”
TSA said demand for East Coast all-water services grew 10 percent for the trade and more than 15 percent for TSA lines in 2007, putting pressure on finite space and equipment.
On the West Coast, significant new costs are on the horizon — from truck replacement, green terminal, transportation worker identification credential, expanded off-peak programs, per-container port infrastructure fees and other charges, some of which will be passed through to ocean carriers.
Regarding longshore contract negotiations underway on the U.S. West Coast, Widdows noted carriers have seen a steep increase in the demand for all-water service to U.S. East Coast destinations via Panama or Suez. “TSA members are working with their customers to ensure that increased demand is accommodated to the degree possible,” he said.
“It is too early to judge whether there will be disruptions, as negotiations historically do not complete until closer to the contract expiration. But you can be assured that carriers are preparing for peak season contingencies,” he added.
Thursday the International Longshore and Warehouse Union, which represents 26,000 longshoremen on the West Coast and the Pacific Maritime Association, which represents terminals, stevedoring companies and steamship lines issued a joint statement that said negotiations were continuing and “each side has exchanged and modified proposals as part of the discussions aimed at reaching a fair and reasonable agreement by July 1, 2008, when the current six-year contract is set to expire.”
TSA members are: APL, 'K' Line, China Shipping Container Lines, Mediterranean Shipping Co., CMA-CGM, MOL, COSCO Container Lines, NYK Line, Evergreen Line, OOCL, Hanjin Shipping Co., Yangming Marine Transport, Hapag-Lloyd, Zim and Hyundai Merchant Marine Co. ' Chris Dupin