Steamship companies: Falling container rates unsustainable
By Larry Thomas -- Furniture Today, July 27, 2009
HIGH POINT — Major steamship companies that transport containers from Asian ports to the United States say the recent free-fall of shipping rates is unsustainable, and they need an additional $500 for every 40-foot container.
The across-the-board increase, which would represent a hike of 30% or more for most shippers, would take effect Aug. 10, according to voluntary guidelines adopted by the Transpacific Stabilization Agreement, a research forum for the shipping lines.
In addition, TSA members are seeking full implementation of a quarterly fuel surcharge that would add another $188 for containers going to the West Coast and $385 for containers bound for the East Coast.
“The eastbound transpacific trade lane has been driven by panic, and panic is difficult to stop once it has begun,” said W.W. Lee, chief executive for container line business at Hanjin Shipping.
Furniture industry logistics experts say the “panic” Lee described has resulted in shipping rates falling from $2,000 to $2,500 per container last fall to $1,000 to $1,500 today. And stories abound of hush-hush deals for less than $1,000 for a container to the West Coast.
Rates on containers shipped to the East Coast have followed a similar pattern. They stood at $3,500 to $4,000 last fall, but are going for $2,500 or less today.
“From an industrywide point of view, the (financial) damage is serious, and if current rates are extended out over 12 months, it is likely that the trade will encounter significant financial challenges as well as basic service sustainability issues going forward,” said Lee.
Logistics executives say they are sympathetic with the plight of the steamship companies, but many question the wisdom of trying to raise prices in the midst of a deep recession.
“I think they probably need an increase, but I don't think the marketplace will accept it,” said Steve Wolfe, vice president of business development at Zenith Global Logistics, which has numerous furniture industry clients.
He said he believes shipping companies will try to raise prices, “but when the first one caves … the rest will follow.”
The TSA said cargo volumes for the first five months of the year were 26% below the first five months of 2008. Some 520 ships representing about 10% of global container capacity had been idled as of June.
The shippers group said it also is studying the implementation of peak-season surcharges, which were common before the recession.
For shipping companies, the peak season is July through October, when holiday merchandise is shipped.
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