Cargo Growth Continues, Say Ocean Carriers

Asia-US liftings for the members of the Transpacific Stabilization Agreement (TSA) totalled 480,000 forty-foot-equivalent-units (FEUs) in July, up 8.6% from a year earlier. Cargo volumes were up in the first half (7.1%) reflecting a 6.3% increase in West Coast and 9.9% increase in East Coast destinations. Carriers wee forecasting a 7% to 8% growth for the full year.

"While growth has moderated a bit, first half year over year growth remains healthy and we continue to hear from our customers that their projections for the balance of 2007 and into early 2008 are for the current growth trend to continue," said Ronald D Widdows, chairman of TSA.

"Specific importers and retailers may be seeing some softness in their sales, but at the same time, others are experiencing robust growth," he continued. "It is clearly too early to conclude to what extent recent volatility in the US financial markets will affect the transpacific market. Based on current views, we do not see a situation developing that curtails growth to a material degree."

Current growth comes on top of an enormous base and continues to put stress on the capabilities of terminals, especially in Asia. "This adds to an already congested supply chain from key Asian countries where US goods are sourced," said Widdows. He characterized 2007 as a year when long-term vessel capacity caught up with demand in the transpacific after years of carriers and shippers underestimating the phenomenal trade growth. A long-term capacity analysis conducted by MDS Transmodal indicates cargo growth outpaced effective capacity growth in the transpacific every year from 1997 to 2006. The struggle to remain profitable in the transpacific market has been a major influence in carriers' individual asset deployment decisions in both 2007 and 2008, continues the analysis. "Such decisions have been taken in the context of forecasts for dramatic improvement in economic conditions in a number of other trades globally. Container lines are more likely to focus investment and vessel assets in trades that generate an adequate return, and for many carriers . . . the transpacific is a more challenging trade in which to operate profitably."

TSA is forecasting 5.2% capacity growth in 2008 for its members and 6.3% for the trade overall. TSA lines anticipate demand pressures in 2008 will be most acute in the East Coast-all-water market as shippers plan for contingencies during the upcoming West Coast longshore contract negotiations. In addition, some shippers may also move ship dates ahead and create a spike in volumes before the expiration of the current longshore contract.

West Coast local rates remained relatively flat and intermodal rates increased by an average of $300-$350 per FEU in the 2006-2007 contracts. East Coast all-water rates rose $100-$150 per FEU, well below the level required to have the industry operating at a profitable level, according to Widdows. Those cost pressures haven't gone away, he said, and for many cost elements, the pressures have continued to escalate. He urged carriers to give shippers greater transparency into their cost factors. TSA didn't offer any projections on rate increases, but it is clear from Widdows' comments the carriers view the current rate levels as unsustainable.

TSA carriers include: American President Lines, CMA-CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping Co., Hapag Lloyd Container Lines, Hyundai Merchant Marine, Kawasaki Kisen Kaisha Ltd. (K-Line), Mediterranean Shipping Co., Mitsui OSK Lines, Nippon Yusen Kaisha (NYK Line), Yangming Marine Transport, and Zim Integrated Shipping Services.

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