Transpacific Growth Sustainable, Rates Arent

Asia-US liftings for the members of the Transpacific Stabilization Agreement (TSA) totaled 480,000 forty-foot-equivalent-units (FEUs) in July, up 8.6% from a year earlier. Cargo volumes were up in the first half (7.1%) reflecting a 6.3% increase in West Coast and 9.9% increase in East Coast destinations. Carriers were forecasting a 7% to 8% growth for the full year.

“While growth has moderated a bit, first half year over year it remains healthy and we continue to hear from our customers that their projections for the balance of 2007 and into early 2008 are for the current growth trend to continue,” said Ronald D. Widdows, chairman of TSA.

“Specific importers and retailers may be seeing some softness in their sales, but at the same time, others are experiencing robust growth,” he continued. “It is clearly too early to conclude to what extent recent volatility in the US financial markets will affect the transpacific market. Based on current views, we do not see a situation developing that curtails growth to a material degree.”

TSA is forecasting 5.2% capacity growth in 2008 for its members and 6.3% for the trade overall. TSA lines anticipate demand pressures in 2008 will be most acute in the East Coast-all-water market as shippers plan for contingencies during the upcoming West Coast longshore contract negotiations. In addition, some shippers may also move ship dates ahead and create a spike in volumes before the expiration of the current longshore contract.

West Coast local rates remained relatively flat and intermodal rates increased by an average of $300-$350 per FEU in the 2006-2007 contracts. East Coast all-water rates rose $100-$150 per FEU, well below the level required to have the industry operating at a profitable level, according to Widdows. Those cost pressures haven’t gone away, he said, and for many cost elements, the pressures have continued to escalate. He urged carriers to give shippers greater transparency into their cost factors. TSA didn’t offer any projections on rate increases, but it is clear from Widdows’ comments the carriers view the current rate levels as unsustainable.

TSA carriers include: American President Lines, CMA-CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping Co., Hapag-Lloyd Container Lines, Hyundai Merchant Marine, Kawasaki Kisen Kaisha Ltd. (K-Line), Mediterranean Shipping Co., Mitsui OSK Lines, Nippon Yusen Kaisha (NYK Line), Yangming Marine Transport, and Zim Integrated Shipping Services.