Will continue push for rate increases and fuel surcharges this year and nextBy Peter A. Buxbaum, AJOTContainer shipping lines operating in the Asia-to-US trade lane say they are making progress in negotiations with customers to recoup the costs of rising fuel prices. Members of the Transpacific Stabilization Agreement, a group of fifteen containers lines operating in that key import trade lane, already moved to mitigate the effects of increased bunker costs by moving capacity away from the Asia-to-US west coast lane, thereby increasing vessel utilization levels. What TSA members are aiming for ultimately is a full floating bunker fuel surcharge in all contracts negotiated for the 2008-2009 contract year. Their rationale is that high fuel costs have driven rates to a non-profitable level. A TSA survey of member line operating costs relative to freight rates shows current rate levels well below break-even costs for nearly all carriers on most route segments. Bunker fuel prices hit $500 per ton late last year, before retreating somewhat, increasing over 50% in 2007. Fuel costs in January 2007 were $300 per ton, $350 in June, $400 in September, and $450 in October. Carriers say that fuel accounts for over 50% of their operating costs at these levels. Obtaining a full floating bunker surcharges, which would be adjusted every month with the price of fuel, will mean doing away with provisions in current contracts, such as caps, mitigation clauses, or folding in bunker rates into base freight rates, which protect shippers. Only around 15% of TSA shippers currently pay monthly bunker adjustments. TSA claimed its members were experiencing success in imposing fuel surcharges, in one-on-one negotiations with shippers, or by levying of emergency bunker charges. Widdows said he was gratified by this success, explaining that it indicates that customers understand the financial pressures affecting our industry and the need for carriers to make an adequate return in order to maintain levels of service the shipping community expects. “Many trans-Pacific lines are already operating at a loss,” added J.S. Lee, senior executive vice president at Hanjin Shipping and a member of TSA’s executive committee. “They are also facing rising costs for intermodal equipment and other costs in addition to fuel. It is imperative that carriers achieve full-floating bunker charges in their contracts going forward.” This position pits the carriers against shippers who negotiate annual contracts in order to obtain price stability over a twelve-month period. “The market must understand that fuel prices are far too volatile, and ocean carriers are far too exposed to fuel cost fluctuations to lock in a single price for a year,” said Ron Widdows, the TSA chairman and chief executive officer of American President Lines Ltd. “The structure of the vast majority of contracts in the trans-Pacific trade did not anticipate the degree of escalation in fuel costs that has occurred. “When we come back to the table in this year’s contract discussions with customers,” Widdows added, “we are going to have to revisit the fuel cost issue and tackle the issue of a full floating charge, adjusted monthly, to more appropriately share the burden of fuel cost escalations, just as all other transport modes have done in the US and globally.” In the meantime, Widdows said, between now and May 2008 carriers will be exploring any and all options available to them, to control operating costs and mitigate the impacts of higher fuel prices. Widdows noted that airlines, railroads and trucking companies all collect full, floating fuel surcharges. “At current price levels, fuel is no longer just another cost component,” he argued. “Carriers saw a 50% increase in marine fuel costs during 2007.” The failure to recover those costs amounts to a hidden subsidy of shippers by carriers, he claimed. Widdows reiterated, however, that the latest fuel cost recovery gains only partially defray the fuel cost increases. Increases in the TSA b