TRANS-PACIFIC OUTLOOK

TRANS-PACIFIC OUTLOOK

What's in store for the eastbound trans-Pacific trade for 2001? That's a subject on many people's minds as negotiations for the 2001 contract season get under way. In October, carriers in the Transpacific Stabilization Agreement were buoyant enough about 2001 to seek general rate increases ranging from $525 to $700 per 40-foot container, depending on whether it's destined for the West Coast, East Coast, or requires an intermodal move. Shippers are also being asked to pay surcharges for bunker fuel, chassis use and container repositioning. That's more than the amount the TSA carriers announced and largely implemented in contracts that took effect last May. Implicit in their October announcement, therefore, was the presumption that volumes in 2001 would be as strong if not stronger as they were in 2000.

That presumption, to say the least, has been under sharp assault in recent weeks. It's become obvious that the U.S. economy is slowing, and a lot of new ship capacity is scheduled to come on line beginning later this year. Third-quarter 2000 U.S. gross domestic product grew 2.2% vs. 5.6 0n the second quarter. Overall 2000 GDP growth will likely come in around 4%, while the latest Blue Chip Economic Indicator survey of 50 economic forecasters called for 2.7 0rowth in 2001.'The prospects are shaping up for a more difficult trade situation in 2001 than the carriers experienced in 2000 and 1999,' said John Fossey, executive consultant at Drewry Shipping Consultants in London.

How difficult remains to be seen. Hardly anyone believes the TSA lines will achieve anywhere near the rate increase they announced in October after an owners level meeting in Vancouver.

Last week senior carrier executives met in San Francisco to assess how much the landscape has in fact changed in the last three months.

The rates written into confidential contracts that take effect in May will depend to a certain extent on what happens in the next two to three months. If carriers can't resist the temptation to slash rates to preserve market share during the traditional slack period, which kicks off with the Chinese New Year later this month, they may have a difficult time achieving even a flat rollover of last year's rates. Also during that time, it will become clearer how many containerloads major retailers and consumer product companies plan to import during the summer-fall peak season. Some believe growth will slow from the double-digit increase of last year to a more moderate pace of between 6% and 8%. That will hardly benefit the carriers, which Fosse said by June will have increased their overall trans-Pacific deployment to 10.4 million annual TEU slots from 9.4 million slots in June of 2000, an 11 0ncrease.

'As we get toward the latter part of the year, the definite possibility exists that supply is going to measurably exceed demand,' said Frank Caradonna, principal of the consulting firm Pegasus Ltd. He said that possibility is forcing many lines to consider signing contracts for longer than the usual 12 months and to allow them to take effect on Jan. 1 or whenever the shipper demands.

Jon Monroe, a former steamship and forwarder executive who heads his own consulting firm in San Rafael, Calif., said the most vigorous area of competition among carriers is likely to be for non-intermodal cargo. These are containers that carriers hand off to shippers on the West Coast. The lines are spared the costly burden of repositioning the containers back to the West Coast before they go back to Asia.

'When I look at this year's negotiations, the lines will be focusing more and more on West Coast business where they can turn their boxes, and it will push the shippers into a transload situation,' Monroe said. 'I can tell you, there are some very low rates on a Hong Kong to West Coast basis.'

A key indicator to watch is capacity utilization. Weakness in rates tends to follow a decline in utilization of vessels. According to On-Board Review, a quarterly publication of the Port Import/Export Reporting Service (PIERS) of The Journal of Commerce Group, eastbound utilization in the first quarter of 2000 was 73.8%, compared with 86 0n the busy third quarter of 2000. If those figures start sliding, watch out below.

Peter Tirschwell is editor of JoC Week. He can be reached at (973) 848-7158, or via e-mail at ptirschwell

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