Shippers Push for Carrier Concessions in Trans-Pacific

Believing the trans-Pacific eastbound market is in their favor headed into 2014 contract negotiations, shippers are sending requests for proposals from carriers seeking low rate levels and other concessions.

Shippers see “short term rates posted on China exchanges as pricing benchmarks for 12-month contracts,” Brian Conrad, executive administrator of the Transpacific Stabilization Agreement wrote in comments submitted for the JOC’s Annual Review & Outlook issue to be published in early January.

Shippers are also seeking capped fuel surcharges, extended free time allowances, and partial absorption of chassis-related costs as carriers exit the business, Conrad said. “The justification? Overcapacity.”

The opportunity shippers are sensing is due to depressed trans-Pacific eastbound spot container rates this year and and sluggish growth in the Asia-to-North America trade. “Initial 2014-2015 contract bid requests from shipper see base rates at or near spot levels,” Conrad said.

Spot eastbound rates have had a rough year. Currently spot rates are $1,700 per 40-foot container (or FEU) from Shanghai to the West Coast, down 23.5 percent since the beginning of 2013, according to the Shanghai Containerized Freight Index. The Drewry Hong Kong-Los Angeles index currently stands at $1,686 per FEU, down 23.8 percent since the beginning of 2013.

That is partly due to sluggish growth in the eastbound trade this year. Year to date through November, the number of loaded containers entering U.S. ports was up 3.2 percent versus the same period in 2012, according to PIERS, the data division of JOC Group. In their deployments and ship ordering, carriers “assumed a more robust recovery,” Conrad said.

Most eastbound annual contracts renew on May 1, but some are signed earlier, including a few before the end of the calendar year.

An early indication of the state of the eastbound trade will come this month and in January. Member lines in the TSA are calling for an across-the-board increase of $200 per FEU effective Dec. 20, 2013, and $300 per FEU effective Jan. 15, 2014.