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Container Rates Increase Starts December

Container shipping lines operating from Asia to the U.S. intend to restore baseline freight rates for late holiday season shipments in December and the pre-Lunar New Year period in January.

Member lines in the Transpacific Stabilization Agreement have plans to collectively adopt general rate increases of $200 per 40-foot container, effective Dec. 20, 2013, and $300 per 40-foot container, beginning Jan. 15, 2014, for the Asia-to-U.S. trade lane. The carriers hope the two-stage increase in freight rates will capitalize on “pockets of particular strength” in the eastbound route and will take advantage of the opportunity for a “badly needed” revenue recovery, according to the TSA.

Freight rate levels in the trade are “still well below sustainable levels,” even after achieving partial success with a previous Nov. 15 increase, the TSA said. Spot container rates from Asia to the U.S. East and West coasts measured by the Shanghai Containerized Freight Index increased more than $100 per 40-foot container in the week of Nov. 15, but the TSA had recommended an increase of $400 in all Asia-U.S. lanes.

“The central truth in this market is that every carrier is operating at a loss,” said Brian Conrad, TSA executive administrator, in a written statement. “Some may achieve net profit from cost-cutting, but the revenue line in each case is lower, and that has long-term service implications for customers.”

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Conrad acknowledged the difficulty of raising rates in a highly competitive market, but said that pressures on carriers from capital markets and parent companies to improve profitability are gradually overtaking supply-demand considerations.

“There is an unrealistic perception that we have a huge capacity gap from Asia to the U.S. and therefore that rates charged in the short-term transactional market should serve as benchmarks for the entire trade in 12-month contracts,” Conrad said. “This thinking devalues the service provided, ignores rising fuel, equipment and operating costs, and has now begun to affect the ability of container lines to access capital markets and even government support for the future.”

TSA container lines said they cannot accept contract demands for 2014-15 rates that are based on, or below, current short-term levels, and they cannot agree to provisions that extend free-time allowances, absorb a portion of chassis-related costs as carriers are exiting that business or mitigate fuel surcharges. As a result, TSA container lines said they see the scheduled December and January rate adjustments as “setting the table” for “significant” additional increases contained in 2014-15 contracts.

The Transpacific Stabilization Agreement, a forum for container lines serving trade from Asia to ports and inland points in the U.S., includes APL, China Shipping Container Lines, CMA CGM, Cosco Container Lines, Evergreen Line, Hanjin Shipping, Hapag-Lloyd, Hyundai Merchant Marine, “K” Line, Maersk Line, Mediterranean Shipping Co., NYK Line, OOCL, Yang Ming Marine Transport and Zim Integrated Shipping Services.