Member lines of the Westbound Transpacific Stabilization Agreement said they are stepping up efforts to win floating fuel surcharges in new service contracts amid the rapid rise in fuel prices, low surcharge levels to date and mounting operational pressures.
“With the inbound Asia-U.S. trade flat, and with fuel, inland intermodal and other costs rising, westbound traffic [to Asia] must truly begin to pay its own way,” Brian M. Conrad, WTSA executive administrator, said in a statement.
Meanwhile, member lines in the Transpacific Stabilization Agreement, representing eastbound carriers (from Asia) have been largely successful in obtaining floating bunker charges in new service contracts, the group said May 22.
“Well over 90 percent of signed contracts for the coming year contain provisions for a floating bunker surcharge, as well as significant increases in the portion of the full, published surcharge level collected,” TSA said in the statement.
The lines had made floating surcharges a key part of contract negotiations.
Floating surcharges are adjusted monthly over the contract term to reflect world fuel price fluctuations. They spell out the increased amount of the published fuel surcharges that will actually be collected in contracts.
“Given the trajectory of fuel prices, which are approaching $600 per ton and have now more than doubled since the first quarter of 2007, the need for structural change in fuel recovery in the trans-Pacific market was critical,” said TSA Chairman Ronald D. Widdows, who is CEO of Singa-pore-based APL.
He added, however, that while the industry has largely achieved its objectives relating to the structure of fuel surcharges, profitability in the trade remains under pressure because of high-
er landside and asset costs.
Most new trans-Pacific contracts included increases to base freight rates, with the strongest gains in the intermodal and U.S. East Coast all-water segments. But Widdows noted that the gains represent only a portion of the levels of $400 per FEU to the West Coast and $600 per FEU for all other shipments that TSA member lines sought to achieve. “Carriers will be seeking to achieve further base rate improvement next year,” Conrad said.
The group said demand for East Coast all-water services grew 10 percent for the trade and more than 15 percent for TSA lines in 2007.
The 10 lines in the Oakland-based WTSA previously announced an increase in bunker surcharges to $600 per 40-foot container, or the full formula level in effect at the time, whichever is lower.
As of Oct. 1, surcharge levels for all tariff and contract cargo will be increased to the full, floating bunker surcharge in effect at that time, and will then be adjusted monthly to float with fuel price fluctuations under the WTSA formula.
Conrad said WTSA has gotten modest incremental increases in freight rates during the past two years, but those have not kept pace with costs.
“Renewal of long-term intermodal rail contracts has meant 25 to 35 percent rate increases for loaded and repositioned empty containers,” the group said. “Trucking rates have risen by a similar degree, through a combination of rates and fuel surcharges.”
Conrad noted imported retail merchandise from Asia is not delivered near where U.S. exports such as pork, cotton or chemical resins are loaded for export.
“Positioning equipment entails transport, storage and handling costs that lines will continue to recover through the base rate structure,” he said.
The global credit crunch is raising questions about the ability of shipping lines to finance orders for new container and dry bulk vessels.
Orders for new container ships are on the decline, experts say, especially in China.
The slowdown in the forecast for global growth and container freight rates “is being reflected in the contracting of containership new build orders, which have been declining,” said Urs Dur, analyst for Lazard Capital Markets.
Howe Robinson, a London ship broker, reported that 0.2 million TEUs of vessel capacity were ordered in the first quarter of 2008, compared with 1.3 million TEUs in the third quarter of 2007 and 0.5 million TEUs in the fourth quarter.
Cancellations and delays threaten as much as $14 billion in ship orders, equal to 94 percent of annual revenue at Hyundai Heavy Industries Co., the largest shipbuilder.
Tighter credit standards are making it particularly difficult for smaller shippers to expand their fleets and more expensive for even the largest carriers. Banks that would finance as much as 80 percent of an order a year ago, with 12- to 15-year loan terms, now won’t finance more than 65 percent, and terms are 10 years or less.
The credit squeeze and order cancellations are raising doubts about the financial viability of the numerous shipyards that have sprung up to fill the orders that have been flooding in.
The Port of Tacoma concluded an array of pending terminal development and infrastructure projects are “reasonably likely” to have an adverse impact on the environment and require additional review. Projects include a $300 million NYK terminal scheduled to open in 2012; relocation of the adjacent Totem Ocean Trailer Express terminal; expansion of the Washington United Terminals wharf and cranes; and redevelopment of portions of the road and rail infrastructure on the Blair Peninsula.
In one of the port’s environmental scoping
documents, the port said it “has determined that
this proposal has a broad scope and is reasonably
likely to have adverse impact on the environment.”
That kicks off a lengthy review to set the scope of the environmental analysis, with a draft environmental impact statement due in September and the final report expected in February.
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