INCREASE IN SHIPPING COSTS FROM FAR EAST ON HORIZON
Byline: Joanna Ramey
WASHINGTON — The cost of shipping goods from the Far East will likely increase markedly beginning May 1, despite efforts by importers to mitigate price hikes in contract talks now under way.
Textile, apparel, footwear and general merchandise shippers say their leverage with members of the ocean-carrier cartel ANERA has diminished since a surplus of vessel space has vanished with the increasing volumes of imports from the Far East over the last year.
“In the past we’ve done much better,” said Hubert Wiesenmaier, executive director, American Import Shippers Association, New Rochelle, N.Y., whose 200 members, including Liz Claiborne and Warnaco Group, band together to get bulk shipping rates. “We are somewhat hamstrung.”
The 10 carriers that make up ANERA, or the Asia North America Eastbound Rate Agreement, have asked for a $325-per-40-foot-container increase. Last year ANERA called for a $225 increase for all commodities. Textile and apparel shippers were able to whittle that down to $60. If this year’s increase is approved, rates for a shipment of textiles or apparel from Hong Kong to Los Angeles would increase 9.7 percent to $3,665 per 40-foot container.
“Hopefully, the increase isn’t going to be as big as ANERA is proposing. But the carriers are holding the trump card this year because of the space issue,” said Wendy Wieland, export-import manager, Kellwood Co., St. Louis.
While each importer strikes its own deal with ANERA, under U.S. shipping laws the cartel must offer the same terms to shippers that are “similarly situated.” And although it’s difficult to make this claim because of the range of needs and commodities being shipped, this concept, called the “me-too” clause, is often invoked during negotiations.
Such is the case with large-volume importers who look to retail giant Wal-Mart Stores, the nation’s largest retailer, to set a benchmark for rates. Wal-Mart is by far the largest shipper in ANERA’s textile/general department store merchandise category, with an estimated 18,000 containers.
“The result of the ANERA-Wal-Mart negotiations will set the tone,” said Tom Eye, international distribution manager of J.C. Penney Co., which typically ships 3,600 containers with the cartel.
While ANERA members carry most of the cargo from the Far East, and are viewed by importers as crucial to their business because of the organization’s breadth of sailings and ports of call, as well as its railroad and trucking connections, the cartel isn’t without competition. Most importers do ship with independent carriers, several of which have upgraded their service and still provide lower rates than ANERA.
But as the independent carriers add more services and get more business, their rates are also increasing, which makes the job of keeping transportation costs down increasingly difficult, importers note.
“You really have to know your service line and your local distribution,” Wieland said. “One carrier may not be good to a certain point in the Midwest and another may be great. This year everyone has to get better at their business. We really have to know what we’re doing and shop the market.”
But even the best service from an independent may not be enough for time-sensitive fashions that need to be rushed from a Far East factory to a store on the other side of the world, said Wiesenmaier, whose clients rely heavily on ANERA. “Fashion apparel importers have expressed a definite preference to use the fastest possible service and they have paid a premium for that cost,” Wiesenmaier said.
ANERA officials are couching the need for a rate increase on the argument that carriers, eight of which are in the red, need a financial boost to maintain and improve services. Since ANERA has not come close to getting its proposed rate increases in recent years, this hike is absolutely necessary, they said, labeling the increase a “rate restoration.”
“There is a lot of financing needed to constantly maintain service. Shipping is very capital-intensive,” said Brian Conrad, ANERA managing director, who is based in San Francisco. Conrad said, however, that in negotiations ANERA will be sensitive to the fact that importers are also strapped with a U.S. retail environment where consumers won’t tolerate price increases. He cited textiles and apparel, which already have the highest shipping rate, to be one such category feeling this price-consciousness.