OCEAN CARRIERS REITERATE: INCREASE AHEAD
Byline: Stuart Chirls
NEW YORK — The ocean carriers have fired another shot across the bow in the shipping rate war.
With negotiations between textile and apparel shippers and carriers slated to get under way Thursday in New York, vessel operators last week released a statement reaffirming their intentions to seek across-the-board rate increases from importers.
In the statement, the Transpacific Stabilization Agreement (TSA) said its members “have resolved to recover a portion of freight revenues lost during 1996.”
“The members of the TSA agreed at a recent series of meetings that freight rates have fallen to a point that no longer adequately reflects the full-service transportation and logistics capability offered to shippers,” the statement said.
The TSA is a San Francisco-based confederation of 15 major carrier lines serving the eastbound trade routes from Asia to the U.S. Its membership includes so-called conference lines allied with ANERA, the Asia North America Eastbound Rate Agreement, as well as “outside,” or non-conference lines.
Unlike ANERA, TSA doesn’t negotiate rates but functions as a policy body, and the statement serves as an indication of just how seriously the ocean carriers have been affected by falling freight rates. The timing of the increase corresponds with the renewal of most eastbound service contracts.
“Carriers lost significant ground on the revenue side in 1995 and 1996,” said TSA administrator Robert Peavey. “With declines of $600 to $1,000 per container since October 1995, affecting nearly all commodity categories, carriers believe that the market will support a rate restoration effort.”
ANERA has publicly said that its members have suffered operating losses of $2 billion to $2.5 billion in 1996 alone.
The TSA lines are committed to unspecified increases in tariff (non-contract) and service contract base rates scheduled to take effect May 1, 1997, from all origin countries in Asia. TSA said that the exact increases “remain under discussion as the lines continue to review market and competitive considerations.”
Peavey emphasized that the TSA policy on freight rates is a “logical extension” of similar actions that hiked assorted accessorial charges over the last several months. “TSA began in late 1996 to focus on the cost side, to make sure that carriers weren’t suffering double losses from declining rates coupled with rising shoreside costs on both sides of the Pacific,” he said. “The next step is to restore tariff and contract rates to acceptable levels.”
Despite ANERA’s antitrust exemption, since mid-1994 shipping rates for eastbound textile and apparel traffic have declined more than 20 percent, from a base $4,310 for a 40-foot container transported from Hong Kong to the West Coast and inland, to about $3,400 — including terminal and other surcharges — for the current service contract that runs through April 1997.
“In the past, the members always felt under the gun with a May 1 deadline, which is when most service contracts run out, and there was a feeling that they were trying to gauge a complicated market too early,” Peavey explained. “Now, they are resolute. Revenues have plummeted the past year and a half. Without appearing dictatorial, it’s impossible to attach a number to [the prospective increase]. For us, it’s a case of damned if you do, damned if you don’t. But there will be more to follow as far as increases are concerned. This is a policy decision of the members.”
Despite the carriers’ claims, shippers said, market conditions, not rhetoric, will determine the outcome of negotiations.
“What TSA is doing is telling the shipping public that they are determined to increase rates,” said Hubert Wiesenmaier, executive director of the American Import Shippers Association, a trade group of 300 textile and apparel importers. “That, however, has little to do with us, since we are negotiating with ANERA. TSA doesn’t negotiate with anybody; it is just a group of carriers.”
Wiesenmaier did admit as to how TSA’s statement was a departure for vessel operators, which could signal more difficult negotiations ahead. “Typically, in the past, ANERA carriers have been the rate leaders among all carriers, conference and outsiders, and set the tone for the market. Now, both the conference and outside carriers are calling for increases together. They want to raise accessorial charges, such as destination and delivery, terminal handling and origin charges. But I will not concede any rate increases.”
Wiesenmaier is closely watching ongoing negotiations between carriers and toy importers, which could influence the textile discussions. “We hear that one or two contracts are close to being completed between ANERA and toy shippers, and there is some talk about what the increases are. ANERA has already increased destination and delivery charges $100 for the equivalent of a 40-foot container, as well as origin and terminal charges. This is a starting point in negotiations for the service contracts.”
He couldn’t predict what the proposed base rate increases might be. “It varies from commodity group to commodity group. We hope to find a compromise that our shippers can live with. Any increase will be minimal, because competition on the Far East routes is too great, and there is too much empty space on the vessels. It will be difficult for carriers to achieve increases. We don’t want to bear the burden of the cost of increases by ourselves.”
Peavey said increases are something carriers think shippers can live with. “We have a very positive feeling of the strengthening of the market in ’97. We are seeing early signs that it will be stronger than ’96. At the same time, we are recognizing that there is still a strong condition of overcapacity. There will be less new capacity introduced this year than last, but last year’s is still having a damping effect. I think there is an understanding across the market that some increase is needed. The rates are just too low.”