Member container shipping lines in the Transpacific Stabilization Agreement (TSA) have agreed to bring forward a previously announced May 1, 2014 general rate increase (GRI) to April 15, in an effort to mitigate rate erosion seen in February and early March. The increase, set at US$300 per 40-foot container (FEU) for all commodities and origin/destination pairs, follows similar recommended increases implemented on January 15 and March 15.
TSA executive administrator Brian Conrad said the series of increases represent a necessary step in correcting a slide in rates that misrepresents actual conditions in the Asia-U.S. freight market. “The downward rate pressures we are seeing do not reflect the steadily improving cargo picture eastbound from Asia,” Conrad said. “The Lunar New Year period was strong, with average vessel utilization numbers in the 95% range; while most people tend to focus only on the supply/demand imbalance, what is getting lost in the pricing discussion is service value.”
Conrad compared the rate situation in the transpacific to decisions by governments worldwide to defer needed infrastructure investment. “We are in effect negotiating the annual operating budget for a major piece of global transportation infrastructure that happens to be privately financed,” he argued. “Competitive pressures to match the lowest short-term rate levels and lock them into 12-month service contracts across the board amounts to a significant deferred investment in the trade. Eventually we will have to stop pricing based solely on supply-demand and pay more attention to long-term service reliability and flexibility – hopefully before a crisis makes the problems more acute and the solutions far more costly.”