Top Ocean Cargo Carriers Face New Challenges: Part II

Industry analysts say Transpacific shippers should be concerned, as carriers now see a bottom in the market, and expect pent-up Q4 demand ahead.

By Patrick Burnson, Executive Editor

October 15, 2015

Transpacific turmoil
Industry analysts say Transpacific shippers should be concerned, as carriers now see a bottom in the market, and expect pent-up Q4 demand ahead. Shipping lines in the U.S. export trade lane to Asia are attempting in enforce an across-the-board increase in freight rates during the current Peak Season.

“U.S.-Asia freight rates have fallen to historically low levels since the beginning of 2015 due to a strong dollar and unusually weak emerging market demand,” says Brian Conrad, executive director of the Transpacific Stabilization Agreement (TSA), a cartel-like organization that discusses rates and services. “Current westbound rate levels in many cases do not fully cover costs.”

At best, adds Conrad, the rate hikes make only a nominal contribution to a round-trip sailing, and barely compete for space aboard ship with empty repositioned containers needed in Asia.

“What’s worse,” he says, “is this comes at a time when westbound equipment is already in short supply, and depressed rates encourage migration of containers to other trades.” 

Analysts note that this action reflects the trade’s recovery from congestion challenges earlier in the year; a strengthening market heading into what is typically the trade’s peak season; and an urgent need to halt damaging rate erosion. 

Meanwhile, the member carriers in the TSA’s Westbound section will be seeking to establish new target rates in all dry commodity segments that translate into modest increases in most cases, with higher proportionate increases for the most depressed rates. TSA-Westbound lines say they expect to follow with similar, gradual increases in November and December.

Sea change
Just as ocean carriers have been using their collective leverage to reshape the pricing and service arena, international shipper’s associations have been working together in closer harmony.

According to the 2015 Global Shippers’ Forum (GSF) Annual Report, the new generation of larger vessels coupled with changes in carrier consortia requires vigilance and cooperation. Based in London, the GSF is an umbrella organization of shippers’ associations such as the National Industrial Transportation League (NITL).

“We have recently launched the GSF SERVICECON contract which for the first time provides small and medium-sized shippers with the ability to enter into volume service contracts on fair and equitable terms,” says Chris Welsh, GSF secretary general.

In the past year the GSF has helped facilitate an important revision of the former guidelines for the safe securing and stowage of cargo transport units through its chairmanship of a joint government and industry working group.  This has led to agreement among stakeholders to introduce a new code of practice, which is designed to improve transport safety throughout the multimodal transport supply chain.

This was in addition to a variety of best practice and policy briefing documents published in 2014/15, including GSF’s Working with Containers Guide.

“We now look forward to the challenges ahead, in influencing the emerging debate about the impact of mega shipping vessels and maritime alliances,” says Welsh. “The policy think tank – International Transport Forum – is off to a good start.”