Westbound Pacific Capacity Seen Returning Slowly

SAN FRANCISCO — Shipping lines are implementing measures in westbound Pacific lanes that should provide a long-term solution to capacity and equipment shortages hitting U.S. exporters, but it does not appear the moves will come soon enough to meet demand for the seasonal surge to Asia this fall.

“Capacity shortfalls will continue into 2011,” Michael Gargaro, senior vice president for ocean freight at cargo consolidator Agility Logistics, told the annual conference of the Agriculture Transportation Coalition Thursday.

“What you see today is how it’s going to be for awhile,” Gargaro said.

Trans-Pacific carriers this past winter reduced vessel capacity some 10 percent, largely because of the steep drop in U.S. imports from Asia. However, exports did not decline as sharply as imports, and actually began to grow strongly last fall as Asian economies rebounded.

The cruel truth for exporters is that carriers deploy capacity in the Pacific on the needs of the more lucrative eastbound trade. William Rooney, president of the Americas at Hanjin Shipping, said carrier revenues per load eastbound are 50 percent higher than for exports to Asia.

“That drives as lot of the decisions we make,” Rooney said. “It’s a fact of life. It’s how we view the world and how we act.”

Still, if export growth continues, which is expected to happen if the dollar remains weak against Asian currencies, carriers will “absolutely add capacity” because the finances will dictate a need for more capacity, Rooney said. Hanjin, in fact, may add vessel capacity later in the summer, he said.

Carriers in recent months have introduced a half-dozen additional services into the Pacific. These services, as well as the normal seasonal lull in exports that will remain until the autumn harvest, have minimized vessel capacity problems for now.

Rooney said exporters still have a problem securing enough containers, but that is largely because empty containers are stuck in coastal and inland urban locations rather than in rural areas where exports are generated.

Gargaro said he expects carriers will add capacity judiciously to avoid spawning a rate war in the trans-Pacific.

Carriers’ primary concern today is to answer to the banks that control their debt and to investors who are demanding that carriers return to profitability after collectively losing upwards of $20 billion last year.

“Allocation management is the name of the game. Carriers will maximize every ounce of space they have,” he said.