The shipping industry is buzzing over this week's extraordinary announcement by the Transpacific Stabilization Agreement, whose members plan to ask customers to renegotiate recently signed service contracts to provide $500-per-FEU increases in eastbound rates from Asia to the United States.
That would be an increase of about 50 percent or more in contract rates, assuming they're close to Hong Kong-to-Los Angeles spot rates, which are about $900 per FEU, according to Drewry Shipping Consultants' latest weekly survey.
No one disputes that carriers are in desperate straits and that some may need the higher rates to survive. Whether that translates into success in renegotiating rates will become apparent during the weeks ahead.
There already are doubters. Here's an opinion we've received from one JoC reader, who writes:
"The primary reasons the TSA August increases will not hold are;
1. No one carrier has gone under yet this year. The expectations were that at least one and as many as three Pacific players would either close up shop or merge into another carrier.
2. Customers found large numbers of carriers, during Pacific contract season, that were willing to drop their shorts on the rates. Many more were aggressive/proactive in doing so than in past years.
3. Carriers expect to have full ships, to a larger degree than normal, as they have downsized. Even with the falling levels of moving freight. They are wishing for demand and guessing on supply, not a good posture reviewing the history of accuracy (or lack thereof) that the industry has with forecasting supply-demand.
4. Customers will not be accepting that all that much has changed over the past 30-45 days (most Pac E/B service contracts were re-signed around late May to late June). Now a 50% increase!! What catastrophe occurred?
5. To make matters worse many carriers "fixed" bunker surcharges for the duration of the service contracts. How where does that make any sense?
I could come up with more reasons, but, the underlying notion is that carriers created the atmosphere that they are totally and completely desperate for cargo in May and June and then decide to raise rates by 50% in August - what's wrong with this picture? Will Ford raise the price of cars by 25% next month?
My bet is that the rate averages will be the same or lower in October/November than they are now, unless a major carrier falls off the earth."
Agree? Disagree? Feel free to share your thoughts here.