AJOT Digital Edition
Issue #592

Cover of issue-592.png

Breakbulk Quarterly

3PL Quarterly

View Issue #592 Now!

2014 Media Kit

Fuel cost recovery a priority for Asia-US lines

By: | at 08:00 PM | Breakbulk & Projects  

Shipping lines expect pick-up in traffic by early September; cost recovery efforts turn to inland fuel

Container lines in the Transpacific Stabilization Agreement (TSA) say they plan to begin narrowing the gap between what they pay for inland fuel in their intermodal operations and what they collect against those costs through inland fuel surcharges. TSA introduced a separate inland fuel surcharge (IFS) in mid-2005 to recover both direct costs and rising surcharges assessed by railroads and motor carriers.

Inland diesel fuel expenses are distinct from marine bunker fuel costs associated with the oceangoing and shoreside portions of an intermodal move. Recovery of a greater share of bunker fuel surcharges was a key component in service contract negotiations earlier this year.

TSA lines assess an IFS that is based on DOE weekly highway diesel fuel prices; applies the Burlington Northern Santa Fe formula for longhaul rail intermodal moves; and assesses a separate pricing tier to cover local and regional shorthaul truck shipments. Highway diesel prices, tracked by the U.S. Department of Energy, have risen 63% in the past year alone from $2.89 to $4.72 per gallon; since January 2007, prices have increased by 83%. The posted IFS has doubled from $232 to $464 per container for longhaul rail and from $67 to $134 per container for shorthaul truck during the past year, but in some cases the full amount of that charge is not being collected.

By contrast, rail and truck carriers have successfully passed through their costs via fuel surcharges, at published levels of around 35-45% of base rates for railroads, and 35-50% for truck operators that have distinct tiers for less-than-truckload (LTL) and full truckload (TL) freight. Freight shippers who arrange their own inland transportation, and/or are involved in domestic distribution, have been paying these costs directly.

‘Ocean carriers are seeing their rail and truck base rates increase, and then those higher rates are raised again by as much as half through fuel surcharges,’ said TSA executive administrator Brian M. Conrad. He noted that the cost impact is often compounded when carriers provide intermodal service using third party transportation companies required by customers, with no control of assets or influence on price increases. ‘Container lines have made it a top priority to pass through a greater share of related costs through the IFS and, above all, to return to a floating surcharge adjusted monthly to reflect highway diesel price fluctuations.’

Conrad said TSA carriers will begin contacting customers in the coming weeks, advising them of IFS adjustments as applicable.

Separately, TSA lines this week are reporting continued slower year-to-date cargo volumes relative to 2007, with indications that demand will begin to improve beginning in late August or early September.

Asia-US cargo demand in the first half of 2008 appears to be holding steady in the 5-6% range below totals for the same period in 2007, based on a combination of PIERS figures for the first quarter and April-June volumes reported by TSA lines only. TSA lines report slowing of cargo coming out of North China, with factory closings around Beijing and dense fog conditions affecting vessel service at Qingdao seen as the principal causes. Carriers also noted a continued shift in cargo to U.S. East Coast all-water services via Panama and Suez, in part due to uncertainty over the West Coast longshore labor negotiations, and also as intermodal costs have risen significantly.

These factors suggest a likely boost in volumes during the next two months and perhaps beyond, to the extent that U.S. consumers are able to regain their footing. ‘TSA members have gotten varying estimates from their retail and other customers about the second half and the peak season,’ Conrad explained. ‘Some consumer segments are doing better than others, but in general the expectation is for a surge in cargo at the end of the summer, leading into at least a modest peak season.’