TSA lines plan $500-per-FEU rate hike



Container shipping lines serving the Asia/U.S. freight market say they will seek an across-the-board freight rate increase of $500 per 40-foot equivalent unit next month.
The 14 members of the Transpacific Stabilization Agreement (TSA) said they have adopted a voluntary guideline increase because "average rate levels achieved in the latest round of service contract negotiations are not sustainable over the typical 12-month 2009-2010 contract term."

The $500 per FEU increase, with proportionate increases for other equipment sizes, is to take effect Aug. 10. The increase will apply to rates for all commodities and all U.S destinations.
 

TSA said that in certain cases, it will be necessary for lines to engage with shippers in a renegotiation of contracts that do not provide for some form of interim rate adjustment.
 

The carriers said they will also pursue full implementation of the quarterly bunker fuel charge, which adjusted upward on July 1 to reflect higher fuel prices.
 

TSA added that the planned general rate increase does not preclude the possibility of a peak season surcharge if the market measurably strengthens and extensive peak season costs are incurred.
 

2009-2010 contracts "were negotiated in the midst of a severely depressed global economy, in which first quarter 2009 cargo demand from Asia to the U.S. was more than 20 percent below levels of a year earlier," the discussion agreement said. "Conditions during the second quarter have shown only slight improvement.
 

"Competitive pressures to keep services operating and avoid further costly vessel layups eroded even the minimum rate levels carriers tried to put in place in the trade in April. TSA reports a $1,000-1,200 drop in average revenue per container during the period from October 2008 through May 2009 alone."

Yen

“The eastbound transpacific trade lane has been driven by panic, and panic is difficult to stop once it has begun,” said W.W. Lee, chief executive for container liner business at Hanjin Shipping, Ltd. “With 2009-2010 contracting nearly completed, lines have had a chance to assess the damage. From an industry-wide point of view the damage is serious, and if current rates are extended out over 12 months, it is likely that the trade will encounter significant financial challenges as well as basic service sustainability issues going forward.”
 

TSA said, "Container lines should not have given in to pressure to match short-term, concessionary rates in the market at the time contracts were being negotiated."
 

“Market forces will ultimately dictate how the current situation resolves itself,” said Jack Yen, Evergreen Marine Corp. president. “In the end this is about the cost of maintaining a viable transportation and logistics service in a challenging market, and investing for the eventual turnaround. Transpacific carriers did not make a strong enough case in their negotiations for stabilizing revenue in the coming year.

But the fundamental problems remain, as can be seen in carrier quarterly earnings reports and continued carrier and service consolidation.”
 

TSA members are APL, China Shipping, CMA CGM, COSCO Container Line, Evergreen, Hanjin, Hapag-Lloyd, Hyundai Merchant Marine Co., "K" Line, Mediterranean Shipping Co., NYK Line, Orient Overseas Container Line, Yang Ming and Zim.