Jerry Lucey knows that wastepaper is a low-value export, but he still would appreciate better communication from ocean carriers when they plan to raise their rates. "I usually find out about it from reporters and truck drivers," said Lucey, who is division manager of Paper Tigers in Richmond, Calif.
The Westbound Transpacific Stabilization Agreement on July 14 announced a proposed $50 per-FEU rate increase on wastepaper exports to Asia, effective Sept. 1. This would be the second such rate increase this year and third since late 2004. The discussion agreement that represents 12 carriers in the westbound Pacific issues voluntary guidelines on rate increases. WTSA members are free to set their own charges.
A rate increase of $50 is not dramatic, especially when rate increases in the much busier eastbound Pacific are often about $400 per 40-foot container. Nevertheless, when Lucey was informed of the WTSA announcement, he said carriers should have known it comes at a bad time in the wastepaper trade.
Global competition for the Asian market is strong, and European exporters appear to enjoy more favorable transportation rates, Lucey said. In a low-margin business such as wastepaper, an increase of $50 per FEU, which is less than $2 a ton, can be enough to break a deal.
Exporters who ship through Los Angeles-Long Beach face the added handicap of an $80 per-FEU traffic-mitigation fee if they move their export containers during daytime hours. The PierPass program that took effect on July 23 is designed to encourage more freight movement in the off-peak hours by charging an $80 premium to ship during the day.
Also, U.S. exporters face increased competition from Chinese shippers of paper products as China ramps up its domestic industry. "We could be losing market share," Lucey said.
Carrier executives know the wastepaper trade is a low-margin business and that large rate increases can be disruptive. That is why they limited the latest increase to $50. "We're trying to be pragmatic. We're doing this in measured steps," said Ed Zaninelli, vice president of the trans-Pacific trade at Orient Overseas Container Line.
Current freight rates of about $400 per-FEU to China are not enough to even cover the carrier's terminal costs in the U.S. and Asia. For many lines, carrying wastepaper is nothing more than a way to reduce the equipment-repositioning costs a carrier experiences in a trade where U.S. imports from Asia outnumber exports to Asia by 2.5-to-1, Zaninelli explained.
In fact, the value of the westbound revenue is negated if the wastepaper moves to locations that are far from Asia's manufacturing centers. Carriers incur repositioning costs within Asia, and if the container is idled at an Asian paper mill for two weeks or longer, as is common, carriers lose the opportunity to refill the box with high-value exports to the U.S., exports that command a freight rate of about $2,000.
Carriers that emphasize economics over market share in the westbound Pacific accept only as many wastepaper bookings to a particular destination in Asia as that region generates in shipments of cargoes destined for the U.S., Zaninelli said.
Carriers and shippers will continue to experience this divergence of interests in a high-volume, low-value trade such as wastepaper. According to The Journal of Commerce's 2005 list of Top 100 Exporters, four of the 10 largest U.S. exporters and 21 of the Top 100 in 2004 were wastepaper exporters. According to the WTSA, wastepaper exports to Asia increased 4.1 percent and accounted for 21 percent of the entire westbound Pacific trade in the first quarter of 2005.