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  • Nov 21, 2014
  • Updated: 8:00am

Transpacific cargo rates to go up 40pc in May

PUBLISHED : Monday, 13 February, 2012, 12:00am
UPDATED : Monday, 13 February, 2012, 12:00am
 

Cargo owners exporting products to the United States face at least a 40 per cent surge in freight rates by May after shipping lines recommended raising charges following a meeting in Hong Kong last week.

Under the proposals, the 15 member carriers of the Transpacific Stabilisation Agreement were recommended to increase freight rates by US$300 per feu (40-foot equivalent unit) from March 15.This could be followed by a minimum increase of US$500 per feu when new shipment contracts are agreed between cargo owners and shipping lines in April.

The TSA said the US$500 would apply to containerised cargo shipped to ports on the west coast of the United States, with a recommended minimum of US$700 per feu to other US destinations. By comparison, the current spot rate for a 40 foot container from Shanghai to the US west coast is US$1,800.

Jon Windham, the Asian marine transport analyst for Barclays Capital, said: 'Our base case remains that we expect a return to profitability in 2012 across the container shipping industry from deep losses in the fourth quarter 2011'. Container lines are expected to report collective losses of US$5.2 billion for last year.

The 15 members of the TSA, who control about 90 per cent of eastbound cargo shipped across the Pacific, include Orient Overseas Container Lines, Cosco Container Lines, and China Shipping Container Lines. The TSA said the March general rate increase was intended to bring Asia-US freight rates back up to near 2011 contract levels, and establish a baseline for contract negotiations.

'The erosion in transpacific rates during 2011 has been well-documented and dramatic,' TSA executive administrator Brian Conrad said. 'If carriers adopt a marginal increase that only partially offsets huge losses as costs continue to rise, the result is another 18 months of losses.'

Conrad added that rate recovery must be meaningful this year in order to maintain service levels and, ultimately, 'carrier viability'.

The increases on transpacific services comes barely two weeks after shipping lines operating services between Asia, Europe, the Mediterranean, and South Asia said they would raise rates from this month.

The increases on Europe routes will more than double freight rates compared with spot rates in December. The Hong Kong Shippers' Council has criticised the increases, saying exporters still faced soft consumer demand in western economies.

Sunny Ho Lap-kee, executive director of the council, said TSA member carriers had a majority share of transpacific cargo capacity. The TSA 'was interfering in the market', he said, and instead carriers should set freight rates based on market demand.

Under US antitrust legislation, carriers can collectively develop voluntary, non-binding guidelines for rates and charges. While such behaviour has been outlawed in Europe, no Asian government has banned collective discussions.

Ho said the planned March rate increase was part of a negotiation strategy by carriers. Long-term contracts between transpacific shipping lines and cargo owners, lasting at least a year, are negotiated between February and April to start on May 1.

The TSA shipping lines indicated extra increases in freight rates and surcharges would be considered later in the year, after a review of market conditions for the second half of 2012. Conrad said fuel prices had exceeded US$700 per tonne since the beginning of this year.

The planned rate increases on US shipments come amid renewed buoyancy in consumer spending in the US. Real spending on electronics climbed 17 per cent in December based on a three month moving average, according to Barclays Capital. Similarly, there was a four per cent rise in spending on toys and a two per cent increase on furniture based on the same three month average.

'Indications look generally positive for a recovery in the [transpacific] trade, making it all the more important for shippers and carriers to co-ordinate their forecasting and plan for contingencies, and for carriers to adequately manage and recover their costs,' Conrad said.

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