Carrier executives speaking off the record in recent weeks say they are having a tough time maintaining last year’s rate levels and predict that for some shippers rates may decrease somewhat.
Sara Mayes, president of Gemini Shippers Association, said trans-Pacific contracts her association has signed this year contained no rate increases. “We’re pretty pleased,” she said at the annual Newport, R.I., trade and transportation conference of CONECT, the Coalition of New England Companies for Trade.
Gemini has 15 service contracts with carriers in the Transpacific Stabilization Agreement and other carriers for its nearly 200 members. Its contract expirations are staggered between March and June.
She said trans-Pacific rates last year were about $1,500 to $2,200 per 40-foot-equivalent unit for West Coast shipments and $2,700-3,300 for East Coast shipments. She said variables include carrier needs, opportunities for container matchbacks, and equipment availability in certain locations.
The negotiations are taking place against a background of overcapacity in the trans-Pacific. Container shipping capacity is expected to exceed demand at least until 2016 in that market, pressuring rates and challenging carriers’ ability to provide service, said Brian Conrad, executive administrator of the TSA.
“The general consensus is that we are going to have an overhang of overcapacity into 2016,” Conrad told CONECT. What makes things worse, he said, is that this isn’t a new story.
Conrad said he recently was clearing out office files from the mid-1990s and realized that except for names and dates, the minutes of carrier discussions nearly two decades ago could have been used for a meeting of TSA carriers in 2014.
He cited estimates of 7 percent growth in container ship capacity this year and said carriers’ forecasts of growth in U.S. containerized imports are in line with the 5.9 percent estimate of JOC Economist Mario O. Moreno — much higher than the 3.3 percent growth in U.S. containerized imports in 2013.
“Unfortunately, some of this overcapacity is driving pricing,” Conrad said. “How does an industry that is so strapped in terms of its costs and its cash and has such a poor revenue stream manage to respond to some of the challenges that are up ahead?”
Despite trans-Pacific eastbound load factors that topped 91 percent to the West Coast and 92 percent to the East Coast during the first quarter, the trans-Pacific trade remains a money-loser for carriers, Conrad said.
“It would be nice if everyone would wake up one morning and say, ‘What? How many other industries are the where load or fill factors are in the mid-to-high 90s. We should be happy with that. It’s not the same in the carrier industry, unfortunately.”
Container ship lines have “different corporate objectives, different corporate cultures, different ways of operating, and there are carriers that feel that even with 90 percent, they need a little bit more,” Conrad said.
He said container ship lines globally have had only five profitable quarters in the last five years, and that every carrier in the trans-Pacific lost money on that trade last year.
The TSA’s monthly revenue index shows that since a spike in 2010, rates have stayed in a fairly narrow band averaging about 80 percent of their 2008 levels.
The index aggregates members’ contract and spot rates. Conrad said comparing the two is like comparing fixed-rate and adjustable-rate mortgages. He noted that spot rates are volatile and don’t offer service guarantees that typically are negotiated in contracts.
The TSA is a research and discussion group of 15 carriers that cannot jointly set rates but can issue voluntary rate guidelines.
Alison Leavitt, managing director of the Wines and Spirits Shippers Association, said trans-Atlantic rates barely budged during the last two years, except for small fluctuations in bunker charges.
