Trade News > Maritime News > Trans-Pacific Carriers Seek Drastic Rate Hike

Trans-Pacific Carriers Seek Drastic Rate Hike

Bill Mongelluzzo | Jul 7, 2009 7:35PM GMT

The Journal of Commerce Online - News Story

TSA member carriers mull $500 per FEU to stay afloat in troubled market

Shipping lines in the eastbound Pacific announced a huge rate increase effective Aug. 10 of $500 per 40-foot container, which would require an unprecedented renegotiation of service contracts if the lines can pull it off.

The Transpacific Stabilization Agreement, a discussion group of 14 carriers in the Asia-to-U.S. trade, said immediate action is needed to bring freight rates back to compensatory levels.

“The eastbound trans-Pacific trade lane has been driven by panic, and panic is difficult to stop once it has begun,” said W. W. Lee, chief executive for container line business at Hanjin Shipping.

The voluntary guideline announced Tuesday by TSA is likely to meet fierce resistance from shippers, many of whom have recently concluded service contract negotiations for the 2009-10 shipping season and are experiencing financial pressures of their own.

Most of the contracts covering U.S. imports from Asia were concluded by June 30. Although terms of the service contracts are confidential, the freight rates are assumed to be close to the publicly-listed spot market rate for shipments from Hong Kong to Los Angeles.

According to a weekly report by Drewry Shipping Consultants published in the Journal of Commerce, the spot market rate this past month held steady at about $900 per-FEU. Contract rates reportedly range from $900 to slightly more than $1,000, including bunker fuel charges.

The proposed $500 per-FEU rate increase therefore would represent an increase of 50 percent or more, which would be highly unusual this late in the game. Importers in the U.S. will soon be booking voyages for the peak-shipping season that runs from late summer into November.

Since many contracts have been signed within the past month at much lower rates, TSA concedes it would be necessary to re-open those agreements. “In certain cases, it will be necessary for lines to engage with shippers in a renegotiation of contracts that do not provide for some form of interim rate adjustments,” TSA stated in a press release.

TSA noted that the current contracts were negotiated in an environment in which cargo volumes are 20 percent below levels of a year earlier.

Freight rates have been plunging. “TSA reports a $1,000 to $1,200 drop in average revenue per container during the period from October 2008 through May 2009 alone,” the release stated.

Anti Trust immunity that is wearing off every year...

- By JHanjin on 8/7/09

How exactly is it legal for competitors to get together and set pricing. It is both collusion and monopolistic.

- By Michael1966 on 7/23/09

Everyone knows what the problem is "Over Capacity". Though I disagree that if one carrier falters someone else will buy them. In that respect usually another carrier does the purchasing of these other lines that go out of business. They eventually incorporate this trade lane into there existing services which ultimately would reduce capacity. The real issue is ship building. How does ownership continue to build bigger vessels only to add them to an over populated trade lane? There are approx. 3 to 5 TSA carriers that are anticipating new, bigger vessels over the course of the next 3 years. It just doesn’t make sense.

Which brings us to another reason, the so called TSA? How does ownership justify the membership cost for a carrier to be a member of the TSA? They do nothing but discuss issues after the fact. I’m not saying that rates shouldn’t go up. What I’m saying is negotiate a contract in good faith and stick to it. It isn’t because of the increases that importers are always furious it’s because of all the bickering that goes on after a contract is signed. Carriers of the TSA are supposed to agree to adjustments every year. Yet they cry because they feel that signing a contract, with an importer will allow them to increase rates thinking that the importer or exporter doesn’t have options. Guess what? The importer or exporter does have options. They have 13 others lines from which to choose from and a guarantee that one of these carriers will want the biz bad enough. A big joke.

- By Sales 101 on 7/13/09

I think this underscores the seriousness of the issues carriers are facing. they have huge investments, have scrapped record numbers of ships, parked many,many more and now are seaking a hike in prices that will offset about half the lost per box rate from one year ago. all this while volumes are expected to be significantly lower that a year ago. however, capacity has been reduced also through aforementioned means. hence, vessells are filling up. shippers need support the carriers, who are a necessary part of the supply chain.

- By DJzinger on 7/10/09

Carriers are usually impossing their GRI regarless if customers agree or not, they just increase rates and apply to contracts; should users does not accept increases, carriers just won't grant spaces/equipment to such customer; therefore, no matter what, they'll go ahead and try to apply the GRI...I don't think it would be smart to increase rates this much at once; better to think about gradual increases...

- By cheslavo on 7/8/09

This will be interesting to watch, trying to go back to customers after negotiating contracts and asking for increases. I guess it is worth a try, can't be worse than where they (the carriers) are now.

- By Kingston4811 on 7/7/09