Container lines are timid about following through on rate increases, while the Big M disguises its hand.
Hoots of derision erupted when 14 trans-Pacific lines plying the Asia to US lane suggested a $250/teu rate increase from August 10. Traffic was through the floor and heading for the basement (Los Angeles/Long Beach down 20 percent) and vessels couldn't be laid up fast enough to cope with declining volumes.
The 14 carriers make up the Transpacific Stabilization Agreement (TSA), a voluntary discussion group that is forbidden from setting rates – otherwise federal indictments would be handed out faster than you can say "anti-trust."
However, the lines are seriously worried about the losses on the route, particularly because of the steep increases in bunker fuel costs, and the call for a rate increase was partly a rallying cry against background music of whistling in the dark.
The unmistakable sign of desperation was an appeal for the increase to come on top of already negotiated contracts for 2009-10. Annual contracts are usually set in February/ March, running from May and to call for changes just two months later indicates the severity of the crisis.
Most analysts expected the proposal to be the equivalent of a badly thrown pebble on a pond – causing hardly a ripple. They were wrong, but only just. The score so far for dry cargo is: COSCO $400 per 20-foot container and an equipment repositioning fee of $320/teu (there is uncertainty as to whether both charges will be levied); OOCL $120/teu -- and that's it. A very big proviso must be added. Individual contract changes will stay confidential and some have risen, but there is no telling how many or which.
The lines are being canny by shoving up rates on the westbound US-Asia link. The Westbound TSA (separate association, with only 11 members but same offices and much of the same staff) wanted $120/teu. More members have answered the call publicly for dry cargo: Mediterranean $120/teu, Evergreen (metal scrap) $40/teu, dry cargo $120/teu.
Nevertheless, those are hardly across-the-board increases. According to Drewry Consultants, spot rates are anything between 5-15 percent up on the Pacific routes since the beginning of August, which shows that there has actually been some movement.
The lines have a third arrow in their weaponry, cutting services. The biggest has been CMA CGM, Maersk and Hyundai suspending the all-water route to the East Coast. Other routes have suffered similar cuts in the past month.
But, the question has to be posed as to whether the carriers' unity is merely a heap of discarded/ forgotten intentions.
Undoubtedly, they wanted to show some teeth, but market forces have bitten back, as shown by Maersk's half-year results. A $540 million loss by the parent company of the world's biggest container line is not small beer – and the rest of the year is expected to be no better. But there does appear to be indecision by management, with executives making defiant statements a couple of weeks ago, "We will aggressively defend our market share", i.e. undercutting competitors. Yet a week or so later the company is busy putting up rates on the Atlantic route.
Industry insiders reckon that that there will be a major shake up in the Pacific lane later this year and the market can expect at least one of the main participants to withdraw or sell a division to a rival.