Hong Kong and mainland exporters face a massive increase in the cost of shipping their goods to North America during the summer peak.
Shipping lines have recommended introducing a costly surcharge from next month. The levy of US$600 per 40 foot container is the highest peak-season surcharge for five years and is equivalent to about 25 per cent of the cost at present of shipping a 40 foot container across the Pacific.
The 15 carrier members of the Transpacific Stabilisation Agreement (TSA), including Orient Overseas Container Line and Cosco Container Lines, have recommended the surcharge take effect from June 15. It is likely to remain in place until mid-October to cover shipments of toys, electronics, garments, decorations and other products that will stock store shelves in the run-up to Christmas and New Year.
Jacques Chan, general manager for Hong Kong and south China at logistics company BDP International, agreed the planned surcharge was the highest for several years.
'Most carriers have announced the peak season surcharge for this year will be US$600 per 40 foot container, as opposed to US$400 in the past,' he said.
The spot rate to ship a 40 foot container from Asia to the United States was US$2,412, according to the Shanghai Shipping Exchange.
The last time the surcharge reached US$600 was in August 2007, when strong cargo volumes drove the TSA to increase the initially announced levy of US$400 per feu (40 foot equivalent unit) by US$200.
Commenting on the outlook, Chan said container lines seemed determined to implement the full peak-season surcharge, 'as they predict the market has generally recovered from the bottom'.
Chan said the container lines would try to ensure the surcharge was upheld, because 'they have to take this opportunity to recoup their huge losses' last year and in this year's first quarter. Most global container lines made losses during that period as freight rates collapsed.
Regarding the likely response from exporters to the surcharge, he said most of BDP's agreements with customers included a clause specifying that customers were liable.
But Chan added: 'They will still put pressure on us to mitigate the increment one way or the other. Ultimately, our revenue might be reduced, or we'd have to offer other value-added services to 'compensate'.'
The logistics manager at a Shenzhen-based company that exports office supplies to North America said cargo owners that had direct contracts with shipping lines for large container volumes might be able to negotiate a reduction. But he said smaller exporters would have to pay the full surcharge.
'Space is getting tighter for a combination of reasons. Carriers have taken out capacity, and volumes are picking up,' he said.
These views were echoed by TSA executive administrator Brian Conrad in a statement announcing the surcharge. 'The lines see a strong outlook for the coming months, with utilisation already in the 95 per cent range. At the same time, they continue to dig out after a long period of serious financial losses and want to be sure they are well-positioned to ramp up services as the trade rebounds,' he said. The TSA's carriers control about 90 per cent of the westbound container trade to the US.
Sunny Ho Lap-kee, executive director of the Hong Kong Shippers' Council, said 'freight rates are on the high side', whereas the export trade was 'not in good shape'. 'We're not entering a strong recovery,' he said, adding that high freight rates and surcharges could not be justified.