Container lines are steadily returning vessel strings to the trans-Pacific trade, but not fast enough to relieve capacity constraints in both directions.
“For some shippers in some areas, there is a little more capacity,” said Peter Friedmann, general counsel of the Agriculture Transportation Coalition, which represents agricultural exporters. “In some areas, it remains a crisis.”
The Pacific Northwest Shippers Association is seeing capacity open up for exporters, but “we’re still being denied bookings” on imports from Asia, said Hayden Swofford, independent administrator.
Shipping lines last year cut capacity by 10 percent when containerized imports in the largest U.S. trade lane plunged 15 percent. Their response achieved the goal of stabilizing freight rates, but it also created a capacity crunch when cargo volumes began to pick up in the fourth quarter.
Capacity began to trickle back earlier in the year, and by the time service contract negotiations with importers wrapped up last month, carriers announced a half-dozen additional services.
While most of the announcements referred to services that had been suspended last year, carriers said most of those would resume with ships larger than those used last year, resulting in a net increase in capacity.
In late April, there were 46 weekly services from Asia to the West Coast with a total capacity of 257,000 TEUs, compared with 39 weekly services totaling 222,000-TEU capacity in January, Dutch research company Dynamar said in its latest DynaLiners report. That represents a capacity increase of 16 percent.
The Transpacific Stabilization Agreement, a carrier research and discussion group in the eastbound Pacific, estimated the capacity in May to be even higher, at 305,000 TEUs a week, and the TSA expects the capacity to remain at that level at least until July.
The increase in capacity should meet customer demand for the next few months. Total container volume through April was up 13 percent, with imports increasing 12 percent and exports, 15 percent compared to the first four months of 2009, according to the Pacific Maritime Association.
However, Ron Widdows, group president and CEO of APL parent Neptune Orient Lines, said space remained tight in the eastbound Pacific, where cargo volumes are “shockingly strong.”
Westbound, exporters are starting to experience relief, Widdows said, but a shortage of empty containers limits their ability to take full advantage of the increase in vessel space. “There are not enough containers in the world, period,” he said. The shortage is especially acute in the Midwest, where so many agricultural exports originate, and where it is most difficult to find container capacity, at least at a price for which shippers are willing to pay.
Swofford pointed to another reason for the westbound capacity relief: Exports generally slow in the summer before the fall harvest. “Anyone who isn’t seasonal is getting on ships,” he said.
Some exports such as wastepaper are relatively steady throughout the year. Another non-seasonal export that is growing rapidly in volume is distillers’ dry grain. A byproduct of ethanol production, DDG is used as animal feed and is popular in Asia.
The major trans-Pacific vessel-sharing alliances are resuming services from North and Southeast Asia to the U.S. West, Gulf and East coasts, often with larger vessels. The average vessel size to the West Coast is now more than 5,600 TEUs. Even the all-water services to the East Coast, which are constrained by the size of the Panama Canal, are deploying some vessels of around 5,000-TEU capacity.
Importers and exporters on both coasts can anticipate more vessel capacity this summer than last. Carriers are resuming all services to the East Coast that they discontinued during the winter months, and the average vessel size is definitely larger this year, said Pete Zantal, manager of strategic analysis and industry relations at the Port Authority of New York and New Jersey.
And, because vessel space remained tight through May on all-water vessels leaving Asia, carriers may decide to increase capacity further with the peak season approaching, said John Wheeler, director of trade development at the Georgia Ports Authority.
This would be welcome news for importers and exporters in the region, Wheeler said. With the increase in DDG and other non-seasonal exports, vessel space outbound from Savannah remains tight. However, the shortage of empty containers seems to have dissipated for now, he said.
If container volumes are stronger than anticipated during the late summer-fall peak shipping season, carriers do not have to commit themselves to adding fixed-day, weekly services. In the past, carriers have deployed single-voyage “extra-loaders” when cargo volumes spiked. Even during the peak season, though, carriers are expected to be cautious in deploying additional capacity. Orient Overseas Container Line, for example, will bring in extra-loaders only if market indications signal that additional capacity is needed, said Frankie Lau, director of marketing.
While carriers grapple with the supply-demand economics leading up to the peak season, exporters are pushing them to think of the changing dynamics in Asia that have implications for ship deployment further out.
Friedmann said the long term remains “very concerning” because carriers have always based vessel deployment in the Pacific on the more lucrative eastbound trade, but the export trade, in terms of percentage growth, will outstrip the growth in imports for years to come.
China alone, he said, is expected to see its middle class increase over the next six years by some 350 million people — larger than the entire U.S. population.
And Asia’s growing middle class is demanding higher-value imports, especially food products. For example, exports of identity-preserved grains continue to grow, with Asian buyers visiting U.S. farms with specific demands for type and quality of such grains, Friedmann said. Year-round exports such as DDG also are increasing.
Higher-priced commodities can tolerate higher freight rates, which should be the recipe for carriers to increase westbound capacity. “They have to figure out a way to add export capacity even if it isn’t needed for imports,” Friedman said. “A better economic model is needed.”