Costs Will Drive Asia-US Container Rates In 2005

Furniture World Magazine

Container shipping lines in the Transpacific Stabilization Agreement (TSA) have completed a detailed assessment of market, operational and infrastructure conditions in the Asia-U.S. container freight market, and finalized pricing plans for 2005 tariffs and service contracts. Carriers report that aggregate operating costs in the Pacific continue to rise, and will increase next year by at least 11-12%, depending on route and transport mode. Port and inland congestion in the U.S. and Asia, and delays moving through the Panama Canal, have only made the situation worse. In response, TSA lines have recommended the following increases in current freight rates, effective in carrier tariffs and upon renewal of service contracts, by no later than May 1, 2005: -US$ 285 per 40-foot container (FEU) for U.S. West Coast and “Group 4” western U.S. shipments. -US$ 350 per FEU for inland point intermodal (IPI) and minilandbridge (MLB) cargo. -US$ 430 per FEU for all-water shipments to the U.S. East Coast and Gulf ports via the Panama and Suez Canals. Carriers further recommended retaining a peak season surcharge (PSS) of US$ 400 per FEU, applicable to shipments from June 15, 2005 through November 30, 2005. The PSS covers higher contingency planning and operating costs during periods of full vessel utilization, such as have been experienced in 2004. It also addresses the structural costs to carriers of maintaining year-round vessel and equipment fleets and schedules scaled to meet peak period demand. Sustained peak period conditions during 2004 have prompted TSA lines, in a separate action, to recommend extending the current PSS for U.S.-East Coast all-water shipments through January 31, 2005. Routine vessel, cargo handling, equipment and inland operating costs have been rising sharply and the trend is expected to continue. In addition, a dramatic increase in cargo volumes from Asia and particularly out of China, carriers say, has strained U.S. port terminals, rail networks, highways and the Panama Canal to capacity. Shippers are experiencing average delays of 5-7 days getting cargo delivered as vessels sit idle at anchor, and as containers are delayed in transit or at harbor and inland terminals. Ripple effects have, in turn, been felt all the way back to Asia as ocean carriers are forced to skip port calls, reduce time in port, advance cutoff times for receiving cargo and, in some instances, reschedule loading of empty equipment or non-linehaul cargo to maintain service levels and schedules. The network implications of congestion have resulted in significant carrier costs over time. Lines also remind that marked increases in bunker fuel costs, due to rising worldwide fuel prices and operational changes, are likely to be reflected in higher bunker surcharges in 2005. TSA lines emphasize that the planned increases cover only a portion of estimated rising costs. Carriers say they will continue to monitor financial impacts in light of changing market conditions and worsening congestion, and will consider further cost recovery measures in coming months as warranted. Infrastructure gridlock, lines predict, is likely to continue during the time it takes to complete long-term port, rail and other infrastructure improvements. Meanwhile, nominal increases in ship capacity as new, larger ships are delivered in 2005-06 will be sharply diminished by operating limitations due to congestion, so that effective capacity is not expected to keep pace with steadily growing cargo demand. TSA is a voluntary discussion and research forum of 13 major container shipping lines serving the trade from Asia to ports and inland points in the U.S. More information on TSA, including current and scheduled guideline rates and charges, can be found at www.tsacarriers.org. TSA members include: American President Lines, Ltd.; Kawasaki Kisen Kaisha, Ltd. (K Line); CMA-CGM Mitsui O.S.K. Lines, Ltd.; COSCO Container Lines, Ltd.; Nippon Yusen Kaisha (N.Y.K. Line); Evergreen Marine Corp. (Taiwan), Ltd.; Orient Overseas Container Line, Inc.; Hanjin Shipping Co., Ltd. P&O Nedlloyd Ltd./B.V.; Hapag Lloyd Container Linie Yangming Marine Transport Corp.; Hyundai Merchant Marine Co., Ltd.