HAVING REPORTED 3% YEAR-ON-YEAR FIRST QUARTER CARGO GROWTH FROM ASIA TO THE U.S., CONTAINER SHIPPING LINES IN THE TRANSPACIFIC STABILIZATION AGREEMENT (TSA) SAID THAT THEY FORESEE A STRONGER SECOND QUARTER AND A CONTINUING NEED TO IMPROVE REVENUE AND RESTORE SERVICE LEVELS AS THE WEST COAST CONGESTION SITUATION EASES.
TSA indicated that stable, compensatory rate levels are key to meeting expected seasonal second quarter demand. As a result, member carriers are recommending USD 600 per 40-foot container (FEU) rate increases on June 1 and July 1, as well as a peak season surcharge (PSS) of USD 400 per FEU, to take effect on July 1.
The increases, TSA said, are intended to counter recent erosion in market rates, while the PSS will help cover contingencies from seasonal cargo surges.
‘The entire transportation and logistics sector is still digging out from a very difficult period, and all parties are eager to return to a more stable, predictable environment in moving goods to market,” said TSA executive administrator Brian Conrad.
“We’re fortunate that the U.S. consumer remains strong, port throughput is improving, and operational chokepoints have eased. But it must be remembered that baseline service levels come at a cost.”
Conrad emphasized that while overcapacity in the market will likely remain a consideration through 2016, it will not represent a major challenge.
Responding to recently reported analyst forecasts predicting more than 20% overcapacity on U.S. East Coast services and downward pressure on freight rates, he pointed out that in several aspects the underlying capacity analyses were based on faulty assumptions, including:
- Using the nominal shipyard-rated capacity of new vessels entering the trade and not the effective capacity after adjusting for vessel loading, berth and terminal capacity and other factors;
- Double-counting services launched as much as a year ago as new, including services carrying significant Subcontinent or other out-of-scope cargo;
- Overlooking the longer-term shift in demand to East Coast and Gulf Coast services, particularly via Suez; and
- Assuming that most traditional West Coast traffic will return to West Coast ports once the current congestion situation ends.
“Our carriers see a very different set of facts on the ground,” Conrad said, “with perhaps a 15% net capacity increase in a market segment that grew by 10% last year and by an annualized 22% in the first quarter – nearly half of that the result of organic growth, not congestion-related cargo diversion.”
He added that East/Gulf Coast vessel utilization remains in the 95-100% range as of mid-April, and that lingering uncertainty over how much discretionary cargo shippers will resume moving via the West Coast makes it essential that carrier be prepared for contingencies going forward.
Transpacific liner companies seek hefty rate hikes
Members of the Transpacific Stabilization Agreement are recommending two $600 general rate increases and a $400 peak season surcharge.