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A 'Less Bad' Market, but Still Uncertain Asia-US container traffic showed steady, slight improvement throughout the second half of 2009. While first half traffic was down more than 20% year on year, the decline narrowed to 18.6% by October and was expected to finish the year down about 16% relative to 2008. Still, there were troubling signs, including a nearly 34% falloff in mixed-commodity general department store merchandise (GDSM) for January-September, suggesting continued retail sector caution about the U.S. consumer. Holiday shopping was better than expected, but the historical peak season was brief; instead many retailers appeared to rely on discounting the last of existing store inventories. All of the top 25 commodity categories in the Asia-US trade were down in terms of year on year cargo volume, most by double-digits. Rates fell by US$500-1,000 per FEU over calendar 2009; they were down $800-1,200 per FEU relative to late 2008. Industry analysts estimated $4 billion in combined transpacific carrier losses in second half 2009. Lines continued to consolidate their routes and services, whether individually or through vessel-sharing agreements and alliances. Overall transpacific capacity was own 13% year on year as of January 2010, according to Alphaliner estimates; capacity is down 21% from mid-2008. Some capacity is being returned as part of 'slow-steaming' strategies that utilize extra ships in a service string and run them at slower speeds to reduce fuel consumption and achieve cost savings. This further enables lines to have tonnage staged as needed for anticipated 2010 cargo growth. Close to a third of all service strings from Asia to the U.S. West Coast had added vessels and extended rotations with slow-steaming as of late January 2010. Lines are returning chartered ships; delaying delivery of ships on order or canceling orders entirely; scrapping some older ships early; adding ships to specific strings in order to operate them at slower speeds and reduce fuel consumption; and, where necessary, laying up ships in port. More than 560 ships, representing 11% of the global container fleet - capacity equivalent to some 1.44 million 20-foot containers (TEU) - were idle as 2010 began. With cargo demand falling to a greater extent eastbound than westbound, the transpacific cargo and equipment balance has narrowed from a peak level of nearly 3:1 in 2007, to just below 1.8:1 at present. While a greater share of outbound returns to Asia may be loaded than in the past, cargo weight constraints plus high inland repositioning costs and depressed rates on that leg often encourage fast turnaround of empty equipment instead. The high number of empty returns, coupled with transload costs for empty equipment and near-dock storage of loaded containers to avoid demurrage and peak period truck fees (such as PierPass) - not to mention various fees themselves, when applied - have added to West Coast cargo handling costs. Transpacific carriers are seeing their basic operating costs rise by more than 8% in 2009-10, in several key areas: Inland rail Inland and local truck Shoreside and inland cargo handling Equipment repositioning Asian feeder services Maintenance and repair Marine bunker fuel prices rose more than 80% during 2009. A new fuel surcharge calculation formula applied by most major lines in the trade helped offset some of that increase, while overall collection of the bunker charge improved. Both bunker and inland fuel charges continue to be undercollected, however, as a result of provisions in earlier contracts, and lines are pressing hard for collection of the full floating bunker charge going forward - particularly in light of fuel price volatility. Managing costs in a depressed market is critical as transpacific carriers struggle to maintain time-definite service, expanded port calls, service and equipment guarantees and real-time supply chain visibitlity that customers are demanding in the Asia-U.S. market.
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