Trans-Pacific carriers push aggressive general rate increases

Shipping lines in the eastbound trans-Pacific announced an unusually aggressive program of rate hikes for the coming months, with two definite general rate increases totaling $1,200 per 40-foot container, and possibly a third rate hike in April. Increases in minimum service contract rates are also proposed.

The Transpacific Stabilization Agreement, a discussion group representing 14 of the largest carriers in the trans-Pacific trades, said the ambitious program of general rate increases is warranted by full ships, strong trade growth in 2014 and projections for continued growth in U.S. imports from Asia in the coming year.

“TSA carriers report consistently full sailings into the Pacific Northwest and via all-water Panama and Suez routes to the U.S.  East and Gulf coasts, as well as 95 percent utilization or better through California ports hardest hit by congestion,” the TSA stated in a Wednesday press release.

The agreement reaffirmed its intention to recommend a previously-announced across-the-board GRI of $600 per FEU effective Monday. TSA recommends a second $600 per-FEU rate hike on March 9, “with an April increase likely to follow, in an amount to be determined and announced later.”

TSA member lines also recommended increases in previously-announced guideline minimum service contract rates. Service contracts, most of which last for one year, are negotiated confidentially between individual shipping lines and their customers. TSA recommended a minimum service contract rate increase of $300 per FEU to the East and Gulf coasts and $200 per FEU on intermodal shipments to Chicago.

Under U.S. shipping law, members of the TSA are able to discuss, with immunity from antitrust laws, pricing and related issues. However, since it is a discussion group, TSA has no enforcement powers. It can only recommend rate hikes based on research and market analysis. Its member lines price their services independently and confidentially with their customers. Over the past two years, many of the TSA’s suggested rate hikes lasted a week or so before deteriorating steadily.

TSA cited current and projected economic developments as supporting what it believes is a trade environment capable of  supporting aggressive rate hikes. The U.S. Commerce Department’s Bureau of Economic Analysis reported that consumer spending rose 3.5 percent in 2014 on goods overall and 6.7 percent on durable goods. The bureau reported a 3.2 percent increase in retail sales last year, including a 4.1 percent increase in the fourth quarter.

Key merchandise that moves in the eastbound trade from Asia including home furnishings, building and garden supplies, electronics, sporting goods health and personal care items, all registered sales gains of 4 to 7 percent last year, TSA stated. The Conference Board’s consumer confidence index is at its highest level since August 2007.

U.S. imports increased sharply in 2014 and are projected to increase again this year. PIERS, the trade-data subsidiary of the JOC Group, reported a 6.1 percent increase in containerized imports in 2014. JOC Economist Mario Moreno and projects 6.8 percent growth in 2015.

Nevertheless, TSA Executive Administrator Brian Conrad cautioned that importers should not benchmark current and projected trade increases against the numbers that repeated themselves year after year in the 1990s and early 2000s.

“The trans-Pacific freight market is maturing. We should not continue to measure it against double-digit annual growth seen a decade ago, but rather in the context of a healthy, steadily-improving trade,” he said.

Therefore, reports of over-capacity in the global trades should have less bearing on freight rate determinations than infrastructure and operational constraints. “The primary imbalance in the trans-Pacific is not so much one of supply versus demand, but rather one of costs versus revenue that in turn drives service,” he said.

The impact of infrastructure constraints has been demonstrated since last summer as congestion plagued U.S. West Coast ports. The congestion heightened in November when longshoremen began three months of work slowdowns and restrictions on the dispatching of skilled labor, according to the Pacific Maritime Association.

Port congestion has thrown trans-Pacific sailing schedules completely out of kilter, and led to a significant diversion of cargo to all-water services from Asia to the East and Gulf coasts. Vessels on those services have been over-subscribed since last summer, and that condition has propped up freight rates on the Panama and Suez Canal services.

Contact Bill Mongelluzzo at and follow him on Twitter: @billmongelluzzo

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