Trans-Pacific Exports Grow but Rates Fall

Trans-Pacific Exports Grow but Rates Fall

Shipping lines that carry U.S. exports to Asia face the paradox of declining freight rates even as cargo volume remains quite strong.

"This is a most confusing market," Ed Zaninelli, vice president of westbound service at Orient Overseas Container Line, told the 11th annual Trans-Pacific Maritime Conference in Long Beach.

The peak season for exports in the trans-Pacific trade extends from late fall to early spring. Last year during those months carriers successfully implemented several rate increases. This year they have not been able to increase rates at all during the winter months, Zaninelli said.

The big difference this year is that carriers have taken very little capacity out of the Pacific trades during the winter months, so a surplus of vessel capacity has made it difficult for shipping lines to increase their westbound rates.

By The Numbers: Containerized Ocean Trade - Southern California Ports

Carriers deploy capacity in the Pacific trades based on their projections for growth in the eastbound direction. Normally, imports fall off noticeably after the holiday season cargo is delivered in late fall. Carriers reduce their operating costs by taking vessel strings out of service for the slack season in the eastbound direction.

Import volumes the past several months remained strong right through January, however, so carriers kept most of their peak-season capacity in place during the winter months. This provided exporters with ample vessel capacity for their shipments to Asia, with some areas, such as Los Angeles-Long Beach, having surplus westbound capacity, Zaninelli said.

Last year equipment shortages were a significant problem for exporters in regions such as the Midwest. Competition for empty containers was fierce, and exporters in effect bid up westbound freight rates in order to lock in guarantees of equipment.

This winter, Zaninelli said, the strong import flows produced sufficient levels of empty containers to satisfy most of the equipment demands from shippers.

Containerized grain shipments, and exports of distillers dry grain, a by-product of ethanol production that is used as animal feed, have been strong this winter, but well below the peak years of 2007 and 2008, said Doug Grennan, senior manager of the international container group at the Scoular Company, an exporter of containerized grain products.

DDG, specialty grains and identity preserved grains move regularly in containers. In 2007-08 a significant volume of bulk grains also shifted to the container sector when bulk rates spiked due to a shortage of bulk vessels. New bulk capacity came on line the past year, though, and bulk rates fell. Much of the bulk grain volume that had shifted to containers several years ago migrated back to bulk vessels, Grennan said.

About 96 percent of U.S. grain exports move in bulk vessels. This indicates there is good potential for diverting some bulk grain to containers if carriers offer competitive prices, Grennan said.

-- Contact Bill Mongelluzzo at bmongelluzzo@joc.com.