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Container lines gear up for Pacific peak season
Planning essential as double-digit growth continues and infrastructure capacity remains limited.From all-water Panama Canal service, to Mexico and Pacific Northwest routing, to distribution center bypass and transload strategies, to off-peak shipment schedules, trans-Pacific container lines and their customers are exploring every possibility for weathering what will likely be another challenging peak shipping season.
Carriers in the Trans-Pacific Stabilization Agreement (TSA) have finalized their 2005-06 service contract negotiations with customers shipping goods from Asia to the US. Rate increases achieved in those contracts, plus a US$400 per 40-foot container peak season surcharge, will help meet service and schedule commitments during the June-November peak period but additional cost pressures continue, TSA said.
After 15.2% cargo growth in the Asia-US container market in full-year 2004, first quarter 2005 cargo volumes grew by 11.1% over the same period in 2004 to nearly 1.3 million 40-foot containers, according to PIERS. China’s government is forecasting 50% cargo growth through mainland ports over 2005-10, with Shanghai alone growing from 14.5 million 20-foot containers annually in 2004 to 20 million by 2007 ’ much of that cargo bound for the US. The efficiency of new, larger ships in the Pacific this year, meanwhile, is being reduced by shoreside and inland capacity limitations, so that a projected 9-10% growth in effective ship capacity will be largely absorbed by a forecast 10-12% increase in cargo demand for the year.
“We’ve seen gradual improvements in cargo and equipment throughput at West Coast ports and along key east-west rail routes, but the first quarter included three week-long holidays in Asia where factories are closed, enabling the supply chain network at this end to catch up,” said TSA executive director Albert A. Pierce. “Now the cargo is moving steadily, lines are reporting 90% utilization or better, and the infrastructure will really be tested as we head into summer.”
Costs are expected to rise in 2005 along with transpacific volumes. Panama Canal-size ships remain in short supply, commanding record charter rates. Rising steel prices pushed up container construction costs 28% in 2004, to $1,750 for a 20-foot standard unit, with the price expected to reach $2,350 by mid-2005 amid high equipment demand.
Railroads and truckers have announced intermodal rate increases to recoup investment in locomotives, track, rail cars, crews, trucks and drivers, insurance, regulatory compliance and more. They will additionally be imposing inland fuel, security, congestion and other surcharges on top of base rates for intermodal shipments. New York/New Jersey, Long Beach and other ports are reducing terminal free-time allowances and raising per diem demurrage charges to improve throughput. Several ports are further implementing security charges, and raising overall rates for ocean carrier tenants based on throughput. Contingency planning for the peak season will be critical this year, as Pierce explained. But many long-term solutions to infrastructure gridlock ’ Mexican or Gulf Coast port development, deepwater berths, Panama Canal widening, 24-hour US port terminals ’ are still years away, and current Pacific Northwest and Panama options are reaching their limits in terms of congestion, vessel size, delays and increased costs. “There is no substitute for planning and communication among supply chain parties to get through the difficult period ahead,” Pierce emphasized. “The price tag paid in 2005 will not buy a quick fix with the next sailing; what it will buy is more service choice in the short term and a more flexible and efficient transportation and logistics infrastructure over time.”
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