Shippers in the Asia-U.S. trade lanes are being told to expect a new approach to pricing and increased rates, as container shipping lines deal with higher costs and the logjam created by limited inland rail and truck capacity.
In the meantime, member container lines in the Transpacific Stabilization Agreement (TSA) are ready to implement a further $1,000-per-40-foot container (FEU) general rate increase (GRI) for all origins and destinations, reflecting stronger than expected holiday traffic and related service demands. The recommended GRI is to take effect on December 15, 2014.
The TSA is a group of ocean carriers’ which includes Taiwan’s Evergreen Marine, China’s COSCO, Korea’s Hanjin Shipping, French privately held CMA GGM, Denmark’s Maersk Line, privately owned Switzerland-based Mediterranean Shipping Company (MSC), and several others.
TSA cited press reports of double-digit import growth in September and October, and forecasts of continued market momentum through the remainder of the year. As in recent years, the holiday retail season is likely to extend into January via gift cards and post-holiday sales promotions.
“With rates as low as they have been since 2011,” said TSA executive administrator Brian Conrad, “lines have steadily reduced and consolidated services; they continue to play catch-up as demand ramps up beyond what had previously been expected.”
Future rates may be determined in a different manner, based on rate minimums rather than an across the board general rate increase, according to Conrad.
“Carriers feel an urgent need in the current market environment to view pricing differently,” Conrad told Logistics Management magazine.
“Rate minimums are an effort to better reflect actual costs of service, rather than simply recommending a specific increase to whatever baseline rate is in the tariff based on short-term supply-demand conditions. Rates will continue to fluctuate with the market according to origin-destination pairs, service requirements, routing and so on, but a common base guideline is essential for lines to maintain basic service levels and, beyond that, expand their offerings based on customers’ needs,” said Conrad.
Among the changes adopted by TSA’s 15 member lines: Contract rate objectives for 2015-16 rather than scheduled general rate increases (GRIs) from varying baseline levels; rates for 20-foot and high-cube 40-foot containers that more fully reflect cost impacts in loading and handling; full recovery of rising intermodal costs due to inland transport capacity and congestion issues; a revised bunker surcharge formula more accurately reflecting current vessel size and fuel consumption; and recovery of low-sulfur fuel costs as tighter emissions standards take effect in January 2015 for vessels operating in North American coastal waters.
On rates, TSA is recommending that its members seek to conclude 2015-16 contract rates, at levels at or above $2,000 per 40ft to the West Coast and $3,500 to the East Coast from all North Asia ports. For Southeast Asia, the objective will be to achieve rates at or above $2,150 to the West Coast and $3,650 to the East Coast. Intermodal base rates will vary by destination, but as an example TSA is proposing 2015 CY rates to Chicago-area ramps to be at least $3,900 from North Asia and $4,050 for Southeast Asia.
Member lines have additionally modified TSA’s formula for other equipment sizes with respect to minimum rates. Base rates for 20-foot containers (TEU) will be assessed at 90% of FEU rates.
TSA’s Conrad says, “Simply rolling over last year’s contract rates, let alone reducing the rates, as some shippers have requested, is just not workable. The goal is a meaningful net increase, with full cost recovery for fuel, chassis, free time and other costs, irrespective of supply/demand or other considerations.”