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Published: 20 March 2009      

TSA moves to halt transpacific freight rate deterioration

Lines say that recent rate turmoil during the traditional off-peak season will, if not reversed, lead to unsustainable conditions that could destabilise the trade

The CEOs of container shipping lines of the Transpacific Stabilization Agreement (TSA) have reinforced their intention to ensure that 2009-10 service contracts do not result in the kind of non-compensatory, unsustainable rate levels that began to develop principally in the “spot” rate market during the off-peak this winter.

The decision to terminate, no later than June 30, 2009, short term rates that have been reduced over the past 4-5 months, was taken by the TSA earlier this week in Tokyo.

TSA’s chairman Ronald D Widdows admitted, however, that carriers had contributed to further erosion in a number of cargo segments, most significantly in the spot market, but there were also examples of non-compensatory rate levels finding their way into new contracts.

“Everyone involved in this trade faces the certainty of significant losses if quick action is not taken to approach the upcoming round of contract negotiations with a renewed focus on rates that will support continued servicing of this market,” said Widows. “It will be evident shortly whether member lines individually can rise to the challenge.”

Assuming that reduced short term/spot rates can be terminated by the end of June at the latest, the next step for lines will be to establish rates for 2009-10 contracting at levels in the range of US$500-$600 per FEU above the low levels that some rates deteriorated to over the last few months.

Even these higher levels, however, would be below the US$2000/FEU that could be commanded a year ago.

The TSA also wants lines to continue to seek further improvements to the number of contracts that contain full floating bunker and inland fuel recovery provisions.

It added that it acknoweledges the difficulties facing shippers and carriers alike in the Asia-US trade, as the continued global economic downturn has affected consumer demand in the US and curtailed manufacturing output and exports from Asia.

“All carriers involved in the transpacific trade are adjusting as best they can to this new cargo demand level, which will probably be with us for some time to come,” said TSA’s executive administrator Brian Conrad.

“This is a time for all parties to come to the table with an eye toward sharing the burden of this extraordinary market environment. Carriers will see rates soften from their 2008-09 levels, but shippers will need to understand that in order to continue to be able to service this market, the rates will have to settle at sustainable levels.

“The carriers have reached a point where financial survival, not utilisation or market share, has to become the driving force.”

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