Transpacific Stabilization Agreement (TSA) announced a new pricing approach in the Asia-U.S. market from 2015 as the carrier discussion group prepares for a fresh round of service contract negotiations.
TSA said the changes are due to “significant cost and operational challenges in 2015-16” as its member-shipping lines manage inland rail and truck capacity shortages, and sharply higher mandated fuel costs beginning in 2015.
Among the coming changes are contract rate objectives for 2015-16 rather than scheduled general rate increases (GRIs) from varying baseline levels; rates for 20-foot and high-cube 40-foot containers that more fully reflect cost impacts in loading and handling; full recovery of rising intermodal costs due to inland transport capacity and congestion issues; a revised bunker surcharge formula more accurately reflecting current vessel size and fuel consumption; and recovery of low-sulfur fuel costs as tighter emissions standards take effect in January 2015 for vessels operating in North American coastal waters.
On rates, TSA recommends 2015-16 contract rates pegged at levels at or above US$2,000 per 40-foot to the West Coast and $3,500 to the East Coast from all North Asia ports. For Southeast Asia, the objective will be to achieve rates at or above $2,150 to the West Coast and $3,650 to the East Coast. Intermodal base rates will vary by destination, but as an example TSA proposes 2015 contract year rates to Chicago-area ramps to be at least $3,900 from North Asia and $4,050 for Southeast Asia.
Additionally, TSA’s formula for minimum rates of other equipment sizes has been modified. Base rates for 20-foot containers (TEU) will be assessed at 90 percent of FEU rates. High-cube FEU base rates will be charged a premium of at least $50 over the 40-foot-standard rate for West Coast and $100 over the 40-foot rate for all other destinations.
“The changes reflect the greater cost impacts from the handling of different container sizes as load and discharge patterns in port become increasingly complex and time-sensitive,” said TSA
“Carriers feel an urgent need in the current market environment to view pricing differently,” said TSA executive administrator Brian Conrad. “Rate minimums are an effort to better reflect actual costs of service, rather than simply recommending a specific increase to whatever baseline rate is in the tariff based on short-term supply-demand conditions. Rates will continue to fluctuate with the market according to origin-destination pairs, service requirements, routing and so on, but a common base guideline is essential for lines to maintain basic service levels and, beyond that, expand their offerings based on customers’ needs.”
The new recommended contract rates will also carry an additional low sulfur fuel cost recovery component, which TSA said it is currently studying and expects to announce in the next several weeks. This will reflect new MARPOL sulfur oxide emission rules that take effect on January 1 2015, which are expected to result in hundreds of millions of dollars in additional financial impact to carriers.
“We are studying the various fuel components very closely,” Conrad explained. “The stricter 0.1% emissions mandate, requiring a shift to costlier marine gas oil (MGO), is of special concern because it will hit the trade all at once and no one can predict just yet where prices will settle. That in turn makes it difficult to adapt our existing formula, but we expect to have a clearer picture closer to January 1, in time to announce a charge with the necessary advance notice.”
TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the U.S. These carriers include APL, China Shipping Container Lines, CMA-CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping Co., Hapag-Lloyd, Hyundai Merchant Marine, Kawasaki Kisen Kaisha, Maersk Line, Mediterranean Shipping Co., Nippon Yusen Kaisha, Orient Overseas Container Line, Yangming Marine Transport, and Zim Integrated Shipping Services.
