Hoping to prop up freight rates as the start of the peak-shipping season gets closer, the discussion agreement representing ocean carriers in the eastbound Pacific announced guidelines for increases of $400 per 40-foot container to the West Coast and $600 to all other destinations, effective July 1.
Brian Conrad, executive administrator of the Transpacific Stabilization Agreement, said trans-Pacific freight rates are still not keeping pace with rising costs, so boosting rates even before the peak season kicks in is necessary.
“We have to make the case repeatedly that short-term, off-season rates cannot be extended for 12 months or longer in contracts,” Conrad said.
The TSA guidelines for its member lines were announced Tuesday after Drewry consultants in London said that although spot rates right now are relatively strong, projected increases in capacity in the months ahead will compromise the ability of the lines to implement rate hikes.
“Although eastbound trade will be bolstered by a peak-season boost of sorts, vessel capacity needs to be taken out now to restore the trade lane to profitability following a poor beneficial cargo-owners contract negotiating season,” Drewry stated.
TSA noted that contracts with BCOs that have been signed so far generally show modest revenue gains compared to the service contracts that were in effect last year. Also, any gains in the 2013-14 service contracts will be at least partly offset by increasing carrier costs, Conrad said.
Rising port charges, labor and inland transportation costs in the U.S. and Asia, recent wage hikes for East Coast longshoremen in the U.S. and for dockworkers in Hong Kong, higher Suez Canal costs and higher rail and truck rates for inland equipment repositioning together are resulting in a big jump in carrier costs.
The TSA announcement comes at a time when carriers are attempting to maintain gains made in their May 1 contracts with customers, and at a time when the spot market rates are also relatively strong.
Drewry’s spot rate benchmark for shipping a 40-foot container from Hong Kong to Los Angeles increased $150, or 13.2 percent, to $2,150 in the week of May 22.
Nevertheless, Drewry’s believes over-capacity will plague carriers in the coming months as larger vessels are cascaded from the Asia-Europe trades to the trans-Pacific. Drewry said the increase in trans-Pacific capacity should cause the average eastbound vessel utilization rate of 83 percent in March to fall below 80 percent by the end of May.
Cargo volumes should increase over the next few months, first with back-to-school shipments and then with shipments for the holiday shopping season. August through October are the peak months in the eastbound Pacific.
TSA is a discussion group representing most of the major container lines that carry Asian exports to the U.S. West, East and Gulf coasts. TSA has no enforcement powers, so its announcements are considered to be industry guidelines.