Liners in eastbound trans-Pacific trade propose two rounds of general rate hikes

Amid a historic decline in spot-market rates on containerized shipments from Asia to the U.S., the largest steamship lines plying the eastbound trade Friday suggested two rounds of rate increases on, Dec. 1 and Jan. 1, designed to pull rates off of rock bottom.

Liners in the "Transpacific Stabilization Agreement" (TSA) said that, effective Dec. 1, it would seek to restore rates to levels no lower than $950 per 40-foot equivalent unit (FEU) container moving to the West Coast; $1,700 per FEU to the U.S. East and Gulf coasts; and $2,950 per FEU for intermodal moves to key Chicago-area inland-point destinations. The most recent noncontractual rate for eastbound freight to the West Coast was $922 per FEU, down from $1,009 in the prior week, according to the Shanghai Containerized Freight Index, which measures market pricing in the trade.

TSA members would follow those increases up with general rate increases of $1,200 per FEU to the West Coast, and $1,600 per FEU to the East and Gulf coasts. Those proposed increases would take effect Jan. 1.

For all 2016-17 service contracts, which are confidential agreements negotiated between carriers and their customers, TSA lines are recommending longer-term minimum rates of $1,700 per FEU to the West Coast and $2,900 per FEU to the East and Gulf coasts. Most service contracts for the 2016-17 period kick in on May 1.

The announcement comes as spot rates in the giant Asia-U.S. eastbound trade continue their downward spiral. In February, a time of severe West Coast port congestion due to a labor dispute between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), spot rates to the East Coast hit $5,049 per FEU as demand soared due to a diversion of freight away from the West Coast; rates to the West Coast were at $2,265.

Container rates worldwide have been hammered all year by a glut of liner capacity and by tepid demand in Europe and emerging markets. Meanwhile, ship lines continue to face escalating operating costs, and have developed operating alliances in an effort to rationalize expenses. The sharp rate declines in recent weeks are abnormal for a trade that normally sees pricing firmness at this time of year due to peak holiday shipping demand.

Making matters worse is the intransigence of users, who repeatedly refuse to pay anywhere near the general rate increases that have been imposed in recent years. Most of the increases evaporate, with carriers having little or nothing to show from them.

In a statement, the carriers said their objective is to establish more compensatory baseline revenue levels as they head into service-contract negotiations, and in advance of the Lunar New Year holiday in Asia that next year begins February 8 and can last up to 15 days. Because factories in Asia close for all or most of that period, shippers and receivers often look to pull their shipments forward ahead of the holiday.

"Trans-Pacific lines are adjusting to a new normal of larger ships and complex alliances, necessitated by cost and environmental compliance pressures—all in the context of an uncertain global economic environment," said TSA executive administrator Brian Conrad. "Irrespective of cyclical supply-demand issues, it is critical that these global infrastructure providers get their pricing right and fully recover their costs through meaningful, staged rate increases heading into 2016."

In addition, the contract program will include what the group called "adjustments" to a wide range of nonrate charges and practices such as absorption of chassis costs; port and rail demurrage charges; equipment detention and per diem; and full recovery of current and projected trucking costs. The group strongly implied that this would result in cost increases for users.

"Lines have learned the hard way that small concessions to a customer here and there expand quickly across the trade and add up, over time, to a lot of money left on the table," Conrad said. "Beyond that, addressing these nonrate items will also help to improve equipment velocity and availability, toward a more efficient and robust supply chain."

TSA holds itself out as a "research and discussion forum" of major ocean container-shipping lines serving the bidirectional trans-Pacific trade.