Pacific Container Lines Seek Rate Floor

Hoping to prevent further deterioration in ocean freight rates, shipping lines in the eastbound Pacific are attempting to scrap the spot rates that have crept into service contracts and to establish a floor for 2009-10 service contract rates.

The Transpacific Stabilization Agreement, a discussion group representing 14 lines that carry Asian exports to the U.S., has established voluntary guidelines of $1,350 per 40-foot container for shipments from Asia to the U.S. West Coast, and $2,500 per-FEU for all-water shipments from Asia to the East Coast.

The TSA is a discussion group which can only recommend rate actions. Its member lines are free to set their own rates in confidential contract negotiations with customers. However, since it represents 14 large ocean carriers, TSA does signal the mood of the industry in the eastbound Pacific.

Member lines are concerned because unusually low spot rates quoted in Hong Kong for shipments controlled by cargo consolidators are finding their way into year-long service contracts.

Last month TSA urged its members to terminate the spot rates by June 30, but at the weekend the group urged its members to end the spot rates no later than May 15.

Also, TSA urged its members, some of which last year signed contracts that will end this June, to make sure the new service contracts they sign this spring terminate no later than April 30, 2010.

Traditionally, new service contracts have been signed in March and April as cargo volumes begin to build in the eastbound Pacific. Carriers believe that this momentum increases their bargaining strength in contract negotiations.

The group also urged its members to include “full, floating bunker charges per TSA’s revised formula.” Most TSA members last year successfully concluded service contracts with bunker surcharges that helped them recoup some of their rapidly increasing fuel costs.

Brian Conrad, TSA’s executive administrator, said recent developments in the Asia-U.S. trade are “truly disappointing” and the current level of freight rates can not be sustained. According to Drewry Shipping Consultants in London, the global container shipping industry will lose $68 billion this year if current rate trends are not reversed.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com.