As is the case most every July of late, the Transpacific Stabilization Agreement (TSA), the shipping industry consortium representing major ocean container shipping lines that serve the transpacific trade in both directions between Asia and the U.S., is seeking a general rate increase for all commodities in the amount 
of $400 per-FEU to the U.S. west coast, and $600 to other destinations, effective July 1, 2013.
A TSA press release last week indicates that these rate increases are “essential if they (TSA) are to achieve financial viability and maintain service levels customers expect in the service-intensive Asia-U.S. market.” Later, the release states: “… increases to date are partly offset by rising port charges, labor and inland transportation costs in both the U.S. and in Asia, including recent wage increases for East Coast and Hong Kong longshore workers, higher Suez Canal costs and higher rail and truck rates for inland equipment repositioning.”
From our lens these statements smack of a myopic or one-sided view of the market.
Because the industry made bad decisions concerning the addition of too much ocean container capacity in the light of continued challenging global economic conditions, shippers are obliged to pay. The recent wage hikes granted to both U.S. west coast and Hong Kong dock workers along with added surface transportation costs are offered as evidence for additional consideration of rate hikes for shippers to pay.
Supply Chain Matters has consistently opined and transportation industry professionals are all too aware that today there is far too much ocean container capacity chasing lowered volume. Some reports indicate that a fifth of global capacity has been idled. While newer ships will address shipping line needs for more efficiency and flexibility, the industry itself remains in a Darwinian struggle as to which players can financially survive the transition. Throw in the latest labor wage hikes from dockworkers without near-term productivity gains to take advantage of the efficiencies of mega-ships and the recipe becomes troublesome at best.
The Wall Street Journal recently reported that the decline in ocean container freight rates in the past six months was three times as fast as in 2011 when a previous price war broke out among the leading carriers. All but seven of the largest shipping lines lost money in 2012 according to a reported analysis by Alphaliner. Shippers have the upper-hand and now TSA wants to be, to use a poker analogy, “dealt a hand” in market dynamics. The ocean container industry obviously feels that shippers bear the responsibility to carrier line needs for profitability.
Increased ocean container transportation rates wipe away shipper efforts to plan more efficiently and utilize non-priority, vastly more expensive transport modes. They further tip the balance for manufacturing decisions as to where to source production, particularly related to China and other Asia based manufacturing regions.
Supply Chain Matters continues with the belief that shippers need to send a returning clear message that the ocean container industry needs to get its collective act together and come to grips with non-sustaining business models. In late December, there was some word as to some shipping lines coming together to pool resources. Legislative and industry leaders within key manufacturing regions in Asia need to add their voice since future growth of manufacturing in these regions is hampered with continuing increases in transportation costs to western markets.
The industry excess capacity issue is not going away and the collective voice of shippers needs to continue to push-back. Smaller manufacturing and retailer firms lacking the clout of large shipping volumes or consolidated buying will continue to feel the economic impacts of these developments unless and until their voice can be heard. We urge the ocean container shipping industry and their investors to make the necessary decisions that demonstrate a clear willingness to solve its structural problems. Global third-party logistics firms must add their voice and influence since they have a stakeholder interest in the viability of cost-effect surface transportation.
Rate hikes are the pain free way to solve a structural industry problem. Creativity and bold leadership is a far more sustainable method to convince shippers that their interests are being addressed.
Bob Ferrari
