Expect Pacific box shortage, says TSA exec

Expect Pacific box shortage, says TSA exec

NEWPORT BEACH, Calif. - The eastbound Pacific trade is being raked by a shortage of containers and vessels, and sharply higher shipping costs, as annual rate negotiations get underway between shippers and carriers.

As reported in JoC Online (March 24), a global steel shortage is likely to squeeze the supply of available dry containers, pushing freight and charter rates higher.

"I believe we will see an equipment shortage in the peak season," Brian Conrad, deputy executive director of the Transpacific Stabilization Agreement, the carrier discussion group in the Asia-U.S. trade, told a meeting of Women in International Trade Thursday.

Container manufacturers are competing for steel with other industries in China's booming industrial sector, prompting them to slash production and ration deliveries to carriers and leasing companies. The shortage has driven the price of a 20-foot container to $1,950 from $1,400 two years ago, Conrad said.

Carriers expect to have enough capacity to accommodate soaring Chinese exports, with four strings of 8,000-TEU vessels and several new services with smaller vessels scheduled to enter the Asia-U.S. West Coast trade this year. But it's unclear whether they'll have enough containers to haul that cargo, Conrad said.

TSA lines also are facing rising fuel and port security costs, as well as higher longshore wages on both coasts, as they look for proposed rate increases of $450 per 40-foot container to the West Coast and $600 to the East Coast and to inland intermodal destinations, Conrad said. Negotiations are underway for the coming year, with most contracts in the eastbound Pacific running from May 1 to April 30 of the following year.

A different scenario is developing for all-water services from Asia to the U.S. East Coast. Panamax vessels are in short supply on the charter market, and rates are rapidly increasing. Charter rates for vessels of 1,500 to 3,000-TEU capacity range from $18,000 to $30,000 per day, about twice last year's rates. Charterers are also demanding that lines lock up ships for periods of three years or longer.

Carriers in the TSA earlier this year slated three new all-water services from Asia to the East Coast. However, a shortage of vessels that can transit the Panama Canal will make it difficult to secure the eight or nine ships required for a fixed-day, weekly service, Conrad said.

High charter costs are also pushing up freight rates, he added, as chartered vessels account for 48 percent of the total capacity of the 30 largest shipping lines.

Whether carriers can balance vessel capacity with shipper demand is sure to complicate the negotiations. Capacity in the eastbound Pacific will increase about 10 percent this year. Trade Horizons, a publication of The Journal of Commerce, on Thursday increased its growth estimate for eastbound cargo to 4 percent from 1.5 percent in an earlier report.

Conrad said growth estimates by other analysts range from as low as 6 percent to as high as 10 percent.

The Pacific Maritime Association on Thursday said containerized imports through West Coast ports increased 4.6 percent in the first two months of 2004. West Coast ports account for about 78 percent of all U.S. total containerized imports from Asia.