Rate increases built on house of cards

Rate increases built on house of cards

Rate increases built on house of cards

 
Liner carriers spanning the east-west container trades may be desperately pressing for rate increases to make up for financial losses, but indications are that industry resolve is as strong as a house of cards.
    Since July 1, this shift upward in prices for container transport, especially on the spot market, has been witnessed in the Asia-to-Europe trade, with the Shanghai Containerized Freight Index reporting a 174 percent increase to $1,409 per TEU.
    The rate from Shanghai to the U.S. West Coast was also up $269, or 15 percent, from $1,845 to $2,114 per 40-foot container, and the rate from Shanghai to the U.S. East Coast was up $377, or 13 percent, from $2,984 to $3,361 per 40-foot container.
    The 15-member lines of the Transpacific Stabilization Agreement have also recommended a peak season surcharge of $400 per 40-foot box starting Aug. 1 to help pay for higher equipment imbalance costs.
    Obviously, for those shippers without annual service contracts, the cost of booking freight for the remainder of this summer could be burdensome, as the liner carriers attempt to impose their GRIs.
    However, leading industry analysts, along with American Shipper, aren’t so sure these GRIs will propel the carriers to their oft-sought-after goal of compensatory freight rates.
    While there are some indications that the United States is climbing out of recession faster than Europe, London-based consulting firm Drewry warned in the eastbound transpacific trade “this year’s peak season in the third quarter is unlikely to be substantial, or last long, which means that vessel capacity will have to be withdrawn before October to prevent freight rates falling further.”
    Drewry explained although average utilization of all vessels sailing from Asia to the West Coast of North America increased from 91 percent to 92 percent between April and May, it was “not enough to stop freight rates continuing to decline.”
    The big impediment for liner carriers to make rate increases stick is the introduction of newer and larger ships in the east-west trades, with some of these behemoths in the Asia-Europe trades reaching upwards of more than 18,000 TEUs. That means older, but still large containerships will cascade into other east-west trades, such as the transpacific and transatlantic. Most industry analysts question the carriers’ ability to orchestrate an en masse hold on capacity — like was done in late 2009 and early 2010 with dramatic effect on rates. Even vessel-scrapping levels aren’t happening at levels quickly to adjust for this new capacity.
    Smart carriers will make every effort to focus less on utilization rates of their vessels, and more on how much profit each container delivers. In other words, for them, it’s better to have a ship 75 percent full with good paying customers than 90 percent full with thin margins.
    However, it’s questionable whether this measure will be enough to make liner carriers profitable this year. Shippers — particularly those with large volumes and savvy negotiating skills — will still likely succeed at paying less-than-compensatory rates for their container transportation.
Since the signing of the new six-year contract, I have repeatedly told my members that we have to make good on our pledge to increase container moves to over 30 an hour — and maybe even more in some ports. In a few weeks, I will be gathering my executive council for meetings in Tampa, Florida, and I will hammer this point to them again. We must deliver on this contract. And we will!
Association of American Railroads data shows U.S. rail traffic rose to 2,554,655 carloads and intermodal units in January, which was a 1.1 percent increase from January 2018.
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Rate increases built on house of cards

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Rate increases built on house of cards

By Chris Gillis on Jul 24, 2013AmericanShipper.com