In shift, westbound trans-Pacific lines recommend minimum rates

In shift, westbound trans-Pacific lines recommend minimum rates

Carriers serving the trans-Pacific westbound trade from the U.S. to Asia will attempt to raise rates as of Nov. 1, arguing that rates currently “fall well below breakeven levels.”

Member carriers in the Transpacific Stabilization Agreement Westbound section will recommend “guideline minimum rates” of $300 per 40-foot container (FEU) from Los Angeles-Long Beach, and $750 per FEU for all-water U.S. East and Gulf Coast shipments, for shipments of waste paper, hay, and metal and plastic scrap to China base ports.

Like a recent announcement related to trans-Pacific imports, the TSA is changing strategy, recommending minimum rates rather than rate increases as they had done for years.

The World Container Index Los Angeles to Shanghai spot rate has plummeted this year, according to data displayed on JOC.com, falling 32 percent since March to $593 per 40-foot container.

But the rationale is the same, that carriers have allowed rate levels to fall so far that they’re not making money at current levels. “Container lines serving the U.S. export trade to Asia have seen freight rates fall well below breakeven levels in recent months amid weakening demand and rising costs,” the TSA said in a statement issued late on Tuesday. “This comes in a trade where relatively low-value, low margin base cargoes such as recyclables and hay account for up to 40% of the entire market, and are moving at rates which do not cover the variable transport costs, let alone contribute to voyage costs.”

TSA-Westbound lines said the specified minimum rates “still do not restore rates to sustainable levels for the commodities and port pairs in question, and it is expected that these, along with rates for other origins and other destinations will need to be higher.”

The TSA, therefore, said further increases are likely in December and in early 2015.

“Many base cargo rates in the westbound transpacific market are approaching levels that do not justify carriage, especially when you take into account offsetting destination costs such as equipment cleaning and repair and local delivery,” TSA-Westbound executive administrator Brian Conrad said in a statement. “That’s bad news for shippers in a market with strong headhaul Asia-U.S. demand for repositioning of empty equipment on westbound ships, as well as for carriers for which recyclables and hay represent a large share of the market. We need to bring those rates up and we believe the market can support the higher minimums.”

TSA lines include: APL Ltd., Kawasaki Kisen Kaisha, Ltd. (K Line), China Shipping Container Lines, Maersk Line, CMA-CGM Mediterranean Shipping Co., COSCO Container Lines, Ltd. Nippon Yusen Kaisha (N.Y.K. Line), Evergreen Line Orient Overseas Container Line, Ltd., Hanjin Shipping Co., Ltd. Yangming Marine Transport Corp., Hapag-Lloyd AG Zim Integrated Shipping Services, Hyundai Merchant Marine Co., Ltd.