Shipping lines in the eastbound Pacific announced large rate increases of $600 to $800 per 40-foot container in a desperate attempt to avoid a repeat of the money-losing service contracts they negotiated in 2012 with beneficial cargo owners.
“This is a make or break period for trans-Pacific carriers,” said Brian Conrad, TSA’s executive administrator. “They cannot afford another year in which expiring contracts and seasonally weak demand erode rate levels, which are then extended for 12 months in the next year’s contracts,” he said.
Last year at this time, shipping lines that carry U.S. imports from Asia began signing annual service contracts with customers at freight rates the lines later said were non-compensatory. Those service contract rates remained in effect throughout 2012.
Cargo volumes always drop during the winter months following the Christmas holidays. Carriers generally have less leverage at this time of year. Nevertheless, they are determined to enter 2013 with a game plan for ensuring that the new service contracts reflect market conditions for the entire year.
The TSA, a discussion agreement of 15 of the larger carriers in the trade, issued voluntary guidelines for an increase of $600 per FEU on shipments to the West Coast, and $800 per FEU on shipments to inland states and to the East Coast. The rate hikes are for dry cargoes and will take effect on Jan. 15.
Tuesday’s announcement follows an Oct. 30 announcement in which the TSA called for an increase of $1,500 per FEU on imports of refrigerated cargoes from Asia.
After agreeing to low rates in service contracts signed last winter with beneficial cargo owners, carriers set about to increase rates charged to cargo consolidators, known as non-vessel operating common carriers.
NVO rates shot up from $1,500 per FEU in December 2011 to a peak of $2,880 in the week of Aug. 6, according to the Drewry Container Rate Benchmark published in the Journal of Commerce. Rates began to drift lower in November as the peak-shipping season wound down, and in the week of Dec. 10 the spot rate for NVO shipments from Hong Kong to Los Angeles averaged $2,168 per FEU.
Carriers say they are determined to prevent volatility in service contract rates in the coming year. “Lines see breaking this cycle as key to their viability going forward,” Conrad said.