Carriers to focus on reversal of severe rate reductions in 2009 and cost recovery.

As transpacific container lines continue to report serious financial losses and major service consolidations, member carriers in the Transpacific Stabilization Agreement (TSA) have adopted voluntary guidelines for the upcoming service contracting season aimed at substantially restoring rates closer to 2008 levels. The guidelines represent an effort not only to reverse a sharp decline in rates during early 2009, but also to fully recover volatile equipment and fuel-related costs.

At the same time, carriers are taking their case for rate restoration to the shippers and regulators well in advance of the 2010 contracting season.'Carriers understand they need a different approach, and need to'work with shippers more closely to help them understand the challenges facing the industry and the implications for global trade.

Independent analysts at AXS-Alphaliner estimate that the top 17 global container lines lost a cumulative $6 billion in the first half of 2009 alone, with many forced to seek fresh capital in financial markets or in some cases government aid in order to stay afloat. Drewry Shipping Consultants estimates carriers will lose at least $20 billion for the full year in 2009, due to reduced demand and severely depressed rates.

'Clearly, the industry entered Transpacific contracting in 2009 facing truly unprecedented trade conditions, in which cargo demand was deteriorating at an alarming pace,' said TSA executive administrator Brian M. Conrad. 'These dynamics produced a panic to maximize ship utilization and maintain market share, leading to a precipitous collapse of rates. Most, if not all, transpacific carriers find themselves operating in the red; it's a situation that is certainly not sustainable over the 2010-11 contract year.'

"The dire situation the industry finds itself in as a result of the unprecedented events that have played out in 2009 must be reversed, said Ronald D. Widdows, TSA Chairman and Group CEO of NOL, the parent of APL. "Carriers must deliver on the contractual commitments they have undertaken, however a dialogue between carriers and shippers reliant on container shipping in the Pacific needs to begin straight away so all can plan well ahead for the changes that are needed in 2010-11 contracting.

Specific elements of the TSA revenue program, to take effect with renewal of current contracts ' most of those over May and June 2010 ' include:

  • A general rate increase (GRI) of US$800 per 40-foot container (FEU) for local West Coast and Group 4 Western coastal states cargo, and US$1,000 per FEU for intermodal and US East and Gulf Coast all-water cargo, with per formula increases for other equipment sizes.
  • A $400 peak season surcharge (PSS), effective from August 1, 2010, to address higher cargo handling, equipment positioning and contingency planning costs during periods of peak cargo volume.
  • Full collection of fuel and other accessorial charges.

'No question, the scheduled increases are significant, and we recognize that our customers too, have suffered from the global financial crisis,' explained OOCL Chief Executive Officer Philip Chow. 'However, these increases must be viewed in the context of the equally sudden and significant volume and rate declines seen in early 2009. In many cases these recommended increases will only return carriers to where they were in late 2008 in terms of revenue per box. The 2010-11 program reflects a determination, finally, that the race to the bottom on pricing in the transpacific must stop.'

Kenji Mizushima, Director & Managing Corporate Officer for Liner Trade at NYK, a member of the TSA Executive Committee, stressed that lines are now in a position where further cost cutting will have potential long-term service impacts going forward. "Individual lines and vessel-sharing alliances have cut and consolidated services, and have laid up hundreds of owned and leased ships worldwide during the downturn,' he po