Shipping lines in the eastbound Pacific announced their intention Monday to increase their freight rates $400 per 40-foot container to the West Coast and $600 per FEU to all other destinations effective April 1.
The general rate increase guideline that was announced by the Transpacific Stabilization Agreement will take effect when the eastbound trans-Pacific trade is recovering from the Chinese New Year celebrations in Asia.
“This translates into slowing cargo demand after the holidays, and is one of many such inflection points that can erode revenue throughout the year,” said Brian Conrad, TSA’s executive administrator.
Furthermore, a number of the 2012-13 service contracts in the eastbound Pacific are set to expire on April 30. Some of those contracts contain “no general rte increase” clauses for the life of the agreement, so those contracts would not be affected by the proposed increases.
Nevertheless, the announcement is intended to establish a floor for rates as shippers and carriers enter service contract negotiations for the 2013-14 contract year that will begin on May 1.
“Carriers are committed to keeping market rates stable over the next six to eight weeks as the contracting season ramps up,” Conrad said.
Carrier executives believe that last year at this time they succumbed to the slowing cargo volumes during the Chinese New Year celebrations and signed service contracts at unnecessarily low rates. Conrad said another year of contract rates at the 2012 level “is not sustainable.”
Therefore, carriers intend on April 1 to implement a general rate increase in those contracts that allow GRIs.
“It is essential to carriers’ long-term viability that new contracts include rates that are more closely aligned with current market levels,” Conrad said.
The impact of Chinese New Year celebrations, when many factories in Asia shut down for a week or longer, is already being reflected in freight rates on the spot market. According to Drewry’s Hong Kong to Los Angeles container rate benchmark index, the spot rate on Jan. 31 was at $2,438 per FEU, which was down 3.4 percent from the week before.