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Customer talks and emergency surcharges produce results as pre-Lunar New Year traffic begins to build. Internal TSA reporting for September-December shows vessel utilization among TSA members averaging 94% via the West Coast and 91% via East Coast all-water service, up from 2006 levels. December utilization up until the Christmas holidays exceeded 90% via all coasts. “The numbers are telling us that although transpacific growth did moderate during 2007, utilization has remained relatively high during the winter season,” noted TSA chairman and APL Ltd. chief executive Ronald D. Widdows. He attributed the strong utilization levels to individual capacity reductions taken by transpacific carriers and consortia – whether to redeploy vessels in other trade lanes experiencing stronger growth; to undertake maintenance and repairs during a seasonally slow period; or to mitigate their exposure to dramatically escalating operating costs, in particular historically high fuel prices. “It can be a costly proposition for lines to shift vessel assets, or to modify routes and schedules,” Widdows added, “but Asia-U.S. carriers really have no option but to fine-tune or even scale back services absent significant improvement in the economics, and with fuel prices topping $500 a ton.” Despite some softening in petroleum prices in recent weeks, Hanjin Shipping Co. Ltd. senior executive vice president J.S. Lee – who serves on the TSA executive committee – stressed that the oil market remains highly volatile, with prices over the coming months impossible to predict. “Rising global demand for oil, supply uncertainties in countries such as Brazil, Mexico, Nigeria and Saudi Arabia, and geopolitical risk have already pushed year-end 2008 oil futures prices into the $150-200 range,” Lee said, referring to a recent article on the options market in Singapore’s Straits Times. “With many transpacific lines already operating at a loss and facing rising intermodal, equipment, environmental and other costs in addition to fuel, it is imperative that carriers achieve full-floating bunker charges in their contracts going forward.” Lines say they are seeing widespread success in achieving needed fuel surcharge increases, through one-on-one negotiations with customers, imposition of emergency surcharges and other means. Widdows called this success “gratifying, as 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.” He reiterated, however, that the latest fuel cost recovery gains are only partial, and that the ultimate objective in 2008-09 is still restoration of full bunker fuel surcharges, based on TSA’s calculation formula, which float with monthly price fluctuations. Profitability concerns in light of rising fuel and other operating costs, Widdows added, will likely diminish the importance of the supply-demand balance as a key driver of price this year. TSA lines have outlined a revenue and cost recovery program for the 2008-09 contract season that includes: - Freight rate increases of US$400 per 40-foot container (FEU) for U.S. West Coast port-to-port and door cargo, and US$600 per FEU for all other traffic, including intermodal and U.S. East Coast all-water shipments. - Restoration of a floating bunker fuel surcharge in all contracts that have had bunker surcharges mitigated, capped or folded into base rates. - A US$400 per FEU peak season surcharge in effect from June 1 through October 31, 2008. Member carriers report strong forward bookings in the run-up to the Lunar New Year factory holidays in Asia, and say they are preparing for the eventuality of cargo surges heading into March and April as shippers try to assure space in advance of the Olympic games in Beijing, and the beginning of talks toward a new West Coast longshore labor contract. Harbor trucking is an added concern as Southern California ports proceed with their joint clean truck program, and as the federal Transportation Worker Identification Credential (TWIC) program is implemented at all U.S. ports. Both have the potential not only to increase fee-based costs, but also to result in driver shortages and service disruptions during peak volume periods. “We will be monitoring the market very carefully in the early part of this year,” said TSA executive administrator Brian M. Conrad. “We know that, overall, cargo growth will be slower, perhaps on the order of 3-5% during 2008, and that supports lines’ individual decisions to redeploy new and existing ships to intra-Asia, Asia-Europe or Latin America. At the same time, many analysts forecast a turnaround in the U.S. economy later in 2008, and lines see the potential for volatility, beginning in late spring and continuing into the peak season due to some very significant, one-time events.” TSA lines forecast an increase in their aggregate transpacific capacity by an average 2-4% in 2008, but cautioned that the gap could narrow if economic conditions do not improve and carriers scale back operations further. TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the U.S
China Shipping Container Lines Mediterranean Shipping Corp. Mitsui O.S.K. Lines, Ltd. Nippon Yusen Kaisha (N.Y.K. Line) Orient Overseas Container Line, Inc. Yangming Marine Transport Corp. Zim Integrated Shipping Services |
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