Snapshot of Asia-US trade suggests moderated but still healthy cargo growth; capacity growth aligned with cargo volumes; shift to East Coast all-water service in the run-up to longshore labor talks; and an ongoing need for rate restoration.
Container shipping lines in the Transpacific Stabilization Agreement (TSA) met in Taipei last week to take initial soundings of the Asia-US cargo market for 2008-09, updating their assessments of the industry supply/demand balance and general operating conditions as they prepare for the upcoming service contract season.
July Asia-US liftings for TSA lines totaled 480,000 40-foot containers (feu), up 8.6% from the 442,000 feu carried in July 2006. Cargo volumes in the first half of 2007 were up by 7.1% from the same period a year earlier, reflecting a 6.3% increase to the West Coast and a 9.9% increase to the East Coast. Carriers are forecasting a continuation of current trends, with 7-8% cargo growth for all of 2007.
‘While growth has moderated a bit, first half year over year growth remains healthy and we continue to hear from our customers that their projections for the balance of 2007 and into early 2008 are for the current growth trend to continue,’ explained TSA chairman Ronald D. Widdows. ‘Specific importers and retailers may be seeing some softness in their sales, but at the same time others are experiencing robust growth. It is clearly too early to conclude to what extent recent volatility in the US financial markets will affect the transpacific market. Based on current views, we do not see a situation developing that curtails growth to a material degree.’ He emphasized that cargo growth, even at current moderated levels, comes on top of an enormous base and continues to stress the capabilities of terminals, particularly in Asia. This adds to an already congested supply chain from key Asian countries where US goods are sourced.
Widdows characterized 2007 as the year when long-term vessel capacity catches up with demand in the transpacific market after years of carriers and shippers alike underestimating the phenomenal trade growth that has taken place. Long-term capacity analysis prepared by MDS Transmodal indicates that cargo growth outpaced effective capacity growth in the transpacific every year from 1997-2006.
The struggle to remain profitable in the transpacific market has been a major influence in carriers’ individual asset deployment decisions in both 2007 and 2008. Such decisions have been taken in the context of forecasts for dramatic improvement in economic conditions in a number of other trades globally. ‘Container lines are more likely to focus investment and vessel assets in trades that generate an adequate return,’ Widdows said, ‘and for many carriers, whether members of TSA or not, the transpacific is a more challenging trade in which to operate profitably.’ TSA forecasts 5.2% capacity growth in 2008 for its members, and 6.3% for the trade overall ’ and possibly less when winter season deployments, which typically see vessel drydocking and other service changes during the first quarter each year, are factored in.
TSA lines anticipate that demand pressures in 2008 will be most acute in the East Coast all-water market, as shippers gauge risk and plan for contingencies during the upcoming West Coast longshore contract negotiations. It is also likely that many shippers, especially larger accounts, will advance some of their cargo to earlier ship dates via all coasts, potentially contributing to a spike in volumes in advance of the expiration of the current contract between waterfront employers and longshore labor.
TSA has begun updating its cost studies, looking at both expected cost increases in 2008-09 as well as understanding to what extent contracting in 2006-07 resulted in costs escalations that were not fully recovered. ‘Frankly, carriers did not achieve the revenue improvement sought in recent negotiating, Widdows said. ‘West Coast local rates remained relatively flat, intermodal rates increased by an average of $300-$350 p