Shipping Lines to hike rates 20 percent-50 percent

Source: Journal of Commerce

Publication date: Feb 17, 2000

Shipping lines in the westbound Pacific trade, encouraged by rising U.S. exports to Asia and sensing a short window of opportunity before capacity surges again, announced a series of freight rate increases.

If the increases stick, they will range from about 20 percent for refrigerated cargoes to as much as 50 percent for the lowest-rated dry commodities.

"Those are pretty hefty increases," said Bob Weiss, an independent administrator of the Food Shippers Association of North America.

Freight rates on goods moving from the United States to Asia dropped significantly after the Asian financial crisis struck in July 1997.

The rate increases announced this week by the Westbound Transpacific Stabilization Agreement are therefore viewed by carriers as an attempt to return to pre-Asian crisis levels.

"As rates remain 40 percent below 1997 levels and lower even than in 1990, lines have commonly acknowledged an urgent need for westbound revenue improvement," the WTSA stated in a press release.

The increases are the latest in a series of rate actions announced by the WTSA since December. Earlier rate hikes on wastepaper, hay, lumber, apples, citrus, grapes, chilled vegetables and juice concentrate have already taken effect.

The WTSA, a discussion agreement of 12 of the largest lines in the westbound Pacific, acknowledged that in the era of confidential contracting brought on by the Ocean Shipping Reform Act, rates charged by its members do vary. But most of the previously announced increases have stuck, it said. "By and large, they've been holding," said WTSA spokesman Niels Erich.

Shipper representatives had suspected that because of confidentiality, implementation of the rate increases would differ carrier by carrier, and that such a situation could end up benefiting certain shippers over others.

But while not all carriers have imposed the full rate increases announced by the WTSA, the trend the past two months has been toward higher rates in the westbound Pacific, Weiss said.

FOUR MONTH PHASE-IN

The rate increases announced on Tuesday will be phased in over the next four months. They will range from $100 to $150 per 40-foot container for low-rated commodities such as hay and scrap metal to $400 to $500 for refrigerated produce and meat.

With consumer spending in Asia on the rise, and construction picking up in many countries, exports of products such as refrigerated meat and poultry, wood pulp, lumber and scrap metal increased by 30 percent or more in 1999 over 1998, the WTSA stated.

Exporters anticipate continued growth this year. "We're looking at a little bit of light at the end of the tunnel," said Thomas C. O'Rourke, president of the National Unaffiliated Shippers Association, administered by the Rhode Island Export Assistance Center. The group represents exporters of a range of products, including building materials, machinery, beverages and food products.

Carriers project that westbound liftings will increase 5 percent to 9 percent this year, said Rikke Janum, marketing representative at Maersk Sealand. Vessel capacity in the trade is scheduled to increase about the same amount, she said.

CAPACITY INCREASED 25 PERCENT

Last year, nine new carriers entered the trans-Pacific, and some existing carriers replaced smaller ships with vessels of 5,000 to 6,000-TEU capacity.Total capacity in the trade increased about 25 percent. "The increase this year won't be anything similar to last year," Janum said.However, existing carriers have large orders outstanding at shipyards in Asia and Europe, and those vessels are scheduled to enter service in 2001 and beyond. Carriers therefore see 2000 as the year to push forward with rate increases in the westbound Pacific.

The WTSA is a discussion group. Its member lines can discuss rates and set voluntary guidelines, but the WTSA has no enforcement powers.

The latest round of rate increases was initiated by individual lines rather than the WTSA as a group. "It was a case of lines making it known that they intended to raise rates on particular commodities. It was then picked up by the group and adopted as a recommendation," Erich said. RISE IN EAST, DROP IN WEST

Maersk Sealand, for example, raised its rates last year in the strong eastbound direction, but rates dropped in the westbound Pacific. "Even with the eastbound increases, the round-trip economics hadn't even reached the level of 1995 to 1996," Janum said. Maersk Sealand believes it is now time for the westbound cargoes to pull their own weight.

However, with nine new carriers in the westbound Pacific, and continued overcapacity, shippers say they don't have to accept large rate increases.

The National Unaffiliated Shippers Association this week announced that it signed a contract with Cho Yang Line, and the freight rates are favorable. "We actually improved our rates," O'Rourke said. Generally, newcomers in the trans-Pacific have undercut existing carriers. Norasia Lines, for example, started with a service to Vancouver, British Columbia, last summer, and added a service to U.S. ports in December. "We're still pretty fresh in the trade," said Steve Toppings, general manager, North America. Toppings said Norasia wants to raise its rates and go after the higher-paying cargoes, but it also must establish a presence in the competitive westbound trade. "We're trying to book freight that is compensatory, but we have to look at lower-paying freight as well," he said.

Given the overcapacity in the trade, exporters say the proposed rate increases reflect some wishful thinking by carriers. "It's a mixture of desperation and reality," said Jil Morley, transportation administrator at Blue Diamond Growers. Morley said her service contracts do not expire until August, and she has not been approached yet about a rate increase.

When OSRA was implemented last May, rate-setting conferences in the trans-Pacific suspended their operations. The discussion groups have no way of knowing if their members adhere to the voluntary guidelines.

Shippers therefore view the WTSA's announcement as a kind of pep talk for its members. "They're just trying to set a mood," said Barry Horowitz, director of business development at AEI Cargo Management Services.

Publication date: Feb 17, 2000 ) 2000, NewsReal, Inc.

Link

http://beta.newsreal.com/cgi-bin/NewsService?osform_template=pages/newsrealStory&ID=newsreal&storypath=News/Story_2000_02_17.NRdb@2@17@3@670&path=News/Category.NRdb@2@15

-- Carl Jenkins (Somewherepress@aol.com), February 17, 2000

Answers

Thanks for this very important posting. This potentially impacts the Hawaiian Economy tremendously! I've seen nothing on this in the local press...

-- Mad Monk (madmonk@hawaiian.net), February 17, 2000.

Excellent work as always, Carl. It's almost a shame we don't have some genuine disasters for you to report on. ;) But keep on truckin'

-- numero sei (iam_not_a_number@hotmail.com), February 18, 2000.