Surcharges, FedEx and China’s Record: This Week in The Journal of Commerce

Surcharges, FedEx and China’s Record: This Week in The Journal of Commerce

Congress Reconsiders Liability Limits

Ocean vessel operators are keeping close tabs on talks in Congress that could dramatically raise oil pollution liability limits in the wake of the Deepwater Horizon disaster in the Gulf of Mexico. Under the Oil Pollution Act, liability of responsible parties is limited to $75 billion plus removal costs. One proposal being floated on Capitol Hill would remove the cap, but doing so would make it impossible for insurance underwriters to assess risk, which would force premiums higher, or make it impossible for carriers to get any coverage, according to Christopher Koch, president of the World Shipping Council. Congress also is considering ways to remove corporations’ liability limits in Deepwater Horizon-type disasters. Sen. Charles Schumer, D-N.Y., and Rep. John Conyers, D-Mich., this month submitted bills that would all but abolish the Limitation of Liability Act, an 1854 law that limited ship owners’ liability in disasters at sea. Sen. Patrick Leahy, D-Vt., is sponsoring another bill to permit families of victims killed at sea to claim non-economic damages. The liability law limits the liability of a ship owner to the value of the vessel after a disaster at sea. According to maritime lawyer Lizbeth Burrell, Congress passed the law to encourage commerce by protecting ship owners when a disaster beyond their control caused loss of life, cargo or the ship itself. Offshore drilling rigs are covered by the law, but Burrell said the petroleum industry had not come into existence when Congress passed it.

Maersk Puts Surcharges Back in the Peak

A year after ocean shipping rates fell far below compensatory levels, Maersk Line is looking to make up for lost time. The world’s largest container carrier, counting on a sustained trade rally that started last winter, will impose a peak-season surcharge of $750 per TEU and $1,000 per FEU in the Asia-Europe trade, effective July 15. The surcharge, which is expected to remain in place through the third quarter, comes atop steep rate increases since the beginning of the year that have sent prices for Asia-Europe cargo soaring to nearly $4,000 per 40-foot container from just a few hundred dollars in the depths of the 2009 recession. Freight rates are expected to rise further in the coming weeks because of an acute shortage of containers caused by a slump in Chinese production during the recession and a surge in Asian exports. Traffic on the Asia-Europe route surged 26 percent year-over-year in April, according to the European Liner Affairs Association, and is likely to accelerate in the third quarter, driven mainly by increasing Chinese shipments. China’s exports jumped 48.5 percent in May from a year earlier and imports surged 48.3 percent, according to Chinese customs. And European imports continue to soar — up nearly 50 percent year-over-year in May — despite the slide in the value of the euro that makes imports more expensive.

China’s Ocean Trade Flows at Record Clip

It’s not officially peak shipping season for another month, and China already is exporting and importing goods at a record clip. Container traffic through Chinese ports hit an all-time monthly high of 12.44 million TEUs in May as the nation’s foreign trade surged nearly 50 percent from May 2009. The record volume was up 21.9 percent from May 2009 and, significantly, 16.6 percent higher than the same month in 2008, a full six months before the global recession slowed global trade worldwide, according to AXS-Alphaliner, the Paris-based consultant and analyst. Six of China’s top 10 ports reported record volume, led by Ningbo’s 52 percent spike to 1.23 million TEUs. Shanghai, Guangzhou, Tianjin, Xiamen and Dalian also posted record monthly traffic. An exporting giant, China also is importing at levels exceeding 45 percent growth to feed raw materials to its manufacturing industry and to satisfy an increasingly robust consumer market. That’s exacerbating a container shortage that’s contributing to cargo backlogs and rising rates — a situation likely to get worse before it gets better.

Diesel Prices Extend Decline — for Now

The beginning of the summer driving season did little to stem a decline in U.S. diesel prices that stretched to five weeks. The nationwide average of $2.928 per gallon in the week ending June 14 was down 1.8 cents from a week earlier, bringing prices to their lowest levels since mid-March, according to the Energy Information Administration. But crude oil prices rebounded from a low of $71.51 a barrel in the first week of June to $73.78, signaling the end of the decline in retail prices may be near. Prices fell in every region and were again highest on the West Coast, where diesel was still going for an average $3.054 per gallon. Nationwide, prices are still 35.6 cents on average above year-earlier levels.

FedEx Sees Pricing ‘Stable’

FedEx is assuming “a continued moderate recovery in the global economy” this year, but the company’s projections for its own recovery are anything but moderate. After posting a $419 million profit in its fiscal fourth quarter following a loss last year, FedEx says it expects earnings to grow up to 81 percent in the summer quarter on improving demand and better pricing. “We believe the improving economy will result in a more stable pricing environment, enhancing our ability to improve yields across all of our transport segments,” FedEx Chairman and CEO Frederick Smith told investment analysts after a robust report on the quarter ending May 31. Pricing grew across all its business lines, but the biggest demand growth came in international air express, where shipments grew 23 percent and freight tonnage soared 68 percent. That may have been pent-up demand, but it also comes as reports of tight capacity in both the air and ocean arenas have shippers scrambling to get inventory into recovering markets. Within FedEx, however, the improved demand is prompting a return to normalcy: The company says it is restoring the employee compensation programs that were cut back in an attempt to stave off layoffs during the downturn.

FMC Tight-Lipped on Tight Capacity

When the Federal Maritime Commission finalizes its preliminary review of vessel capacity and equipment availability for U.S. shippers, the results will be confidential. The commission, which launched its fact-finding investigation in March after shippers complained to Congress and the agency that carriers were driving up rates by artificially limiting capacity in ocean trades, will review the preliminary findings this week. Carriers countered that the shortages resulted from a combination of a financial drubbing that saw them lose an estimated $15 billion last year, and a stronger-than-expected trade rally that caught even shippers by surprise. The commission will consider the report in closed session. When it issued its order in March, it stipulated that the report would remain confidential unless commissioners decided otherwise. The final report also will be confidential.

Airports, Carriers Pack in the Cargo

Frustrated shippers looking for capacity appear to be willing to pay more to ship by air than waiting for jam-packed ships and containers that are in short supply. “The high growth rates in air freight tonnage result especially from Asia’s dynamic economic activity and from air freight’s special forte of making available at short notice the capacities required by industry and trade,” Stefan Schulte, chairman of Frankfurt airport owner Fraport, said as Europe’s largest cargo hub reported record May volume on the back of a 40 percent surge in year-over-year volume. The 204,332 metric tons handled in the month topped the previous monthly record in March, when the airport’s cargo traffic broke through the 200,000-ton barrier for the first time. Cargo through the first five months of the year is running 33 percent ahead of last year’s pace. The increase came amid reports of sharper increases in air freight rates, including an 18.4 percent jump in the Drewry Shipping Consultants’ Air Freight Rate Index for prices out of Shanghai. Carriers are seeing strong demand even as much of the freighter capacity sidelined during the downturn remains grounded. Lufthansa Cargo’s freight traffic jumped 17.6 percent in May and was up 19.6 percent in the first five months of the year. Japan’s two largest cargo carriers, JAL and All Nippon Airways, also reported strong gains. JAL’s international volume climbed for the sixth consecutive month, growing 12.7 percent in April, though the pace of growth slowed dramatically from 32.9 percent a year earlier. ANA’s international volume surged 57.3 percent in the month, the eighth straight month of growth.

Panama Canal Tolls to Rise on Jan. 1

Tolls on container ships transiting the Panama Canal will rise nearly 14 percent next year under a new pricing structure approved last week by the country’s Cabinet Council. The new pricing structure raises tolls for all vessel segments, including container, dry bulk, liquid bulk, vehicle carriers, reefers, passenger, general cargo and others. Starting Jan. 1, the Panama Canal Authority will assess a toll of $74 per TEU on a ship’s rated capacity, plus a fee of $8 per TEU on laden containers only, instead of assessing a toll on the rated capacity of a container ship whether or not it is carrying loaded containers. Under the plan, which was first proposed in April, a container ship carrying only empty containers will still pay $74 per TEU on its capacity, but nothing on its empty containers. In the rare case when a container ship passes through the canal carrying no containers, the toll on its capacity will be reduced to $64.50 per TEU. The increase will amount to about $10 per loaded 20-foot container. The newly approved structure delays from January to April 2011 implementation of the reefer segment increase on the portion applicable to the PC/UMS tons. “During the past few months we have talked with industry representatives, shipping lines, including government representatives from countries that benefit from the Panama Canal. We have listened to their feedback and have made adjustments to our pricing structure accordingly,” canal Administrator and CEO Alberto Aleman Zubieta said. “For instance, we selected the tolls implementation date of January 2011 to respond to industry requests of a moratorium on increases in 2010,” he said.