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Published: 17 April 2009      

TSA moves to defend rates

Carriers say minimum rate levels, subject to full floating bunker charges, are needed to sustain service levels in the Transpacific trade

Transpacific container lines are recommending an unprecedented schedule of minimum base freight rates from Asia to US for their upcoming service contracts, in an effort to stabilise revenues and services.

Member lines in the Transpacific Stabilization Agreement (TSA) say that establishing a floor on rates, in light of the recent flurry of reductions, will likely decide whether some lines continue to operate in the trade.

Despite initiatives previously announced by the TSA, efforts to curtail rate volatility during the traditional off-peak period have been largely unsuccessful, as carriers have struggled to respond to substantially lower cargo demand and the resulting overcapacity.

Senior executives with TSA carriers now must come to terms with a stark set of choices: Set their pricing at minimally sustainable levels, or see massive losses in 2009-10 that will not only threaten their viability but also damage the service integrity in the trade.

Therefore, TSA carriers have agreed to take a number of actions on a voluntary, non-binding basis:

  • Current spot rates initially set to expire on June 30, 2009 should now be expired on 30 days’ notice from the earliest day possible, and by no later than May 15. 
  • New minimum rates per 40ft container with proportionate increases for other equipment sizes) should be applied in all contracts not yet concluded, as soon as possible but no later than July 1, as follows: West Coast US$1350 East Coast All-Water US$2500 Guideline minimums have also been adopted for selected mini-landbridge and inland point destinations.
  • Guideline minimum rates per 40ft high cube container have been recommended at levels US$100 above those for standard 40fts 
  • All 2009-10 contracts should expire by no later than April 30, 2010, the traditional cycle in the transpacific.
  • All contract offers should be subject to full, floating bunker charges per TSA’s revised formula, with quarterly adjustment and separate charges for West Coast and East Coast sailings.

“Recent developments in the Asia-US freight market are truly disappointing,” said TSA executive administrator Brian M Conrad. “The minimum levels TSA lines intend to establish individually are well below where rates were this time last year, and in many instances below carriers’ expectations for cost recovery, let alone profitability.

"The unnecessary panic mentality that set in during the winter months will cost this industry heavily, if the rates we have been seeing continue to slide and are locked in over a period of months in new contracts.”

According to the TSA statement, Drewry Shipping Consultants forecasts that the liner shipping sector worldwide stands to lose US$68B in the coming year if current rate trends are not reversed.

AXS Alphaliner, which tracks worldwide container vessel capacity, recently reported that the global cargo downturn has led to 11.3% of the world’s containership fleet – more than 480 ships with the capacity equivalent of some 1.4M TEU - being taken out of service to date.

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  • Transpacific Stabilisation Agreement
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