Transpacific rates beaten down by excess capacity and weak loads
An anemic US economy and way too much space dealt shippers all the best cards as they squared off with carriers in the annual staring contest to determine contract rates.
Transpacific shipping lines will have had no assistance from trade statistics as their annual campaign to push up freight rates draws to a close.
Asia-West Coast trade in the first quarter fell almost five percent over the same period last year, and although the Los Angeles-Long Beach port complex handled 3.5 percent more containers in the first four months year-on-year, it was a sharp slowdown over the last few months of 2012.
The annual contract negotiations tradionally end in May but the carriers will once again have had a tough time convincing shippers to pay more as they deal with their own issues. Factory orders have stubbornly resisted the US economic recovery and the HSBC purchasing manager’s index in China fell below the benchmark 50 points last month, pointing to a manufacturing slowdown.
Much of the malaise hitting the mainland’s manufacturing sector can be blamed on Europe’s meltdown, but US demand has not exactly come to the party.
On Asia-US trade, demand grew just 1.5 percent, according to Alphaliner. Capacity to the West Coast will increase 8.9 percent this year and 2.2 percent to the East Coast.
With too much space and not enough cargo, the effect on a weakened container shipping market is bound to be devastating. Drewry reckons the average capacity utilization fell from 90 percent to an incredible 83 percent in March, a weak position from which to try to hike rates.
There’s no point in trying to lock shippers in to contract rates that are higher than the spot market, and with little sign of an economic improvement – and a reluctance by lines to withdraw capacity – cargo owners will no doubt be happy to take their chances outside carrier agreements.
Still, the benefits of low freight rates are dubious at best and come with the risk of poor service, including longer transit times and blanked sailings. Any shipper will tell you that paying a bit more for a reliable and consistent service is better than getting a bargain basement rate and having to deal with service disruptions or delivery problems because the consignment is late.
Forget the mega shippers. They demand a rate from a carrier and get the rate they want. It is the SME shippers that have been sitting across from the lines at the negotiating table for many years as the two parties push and pull.
Which does beg the question – why can shipping lines and those SME shippers never manage to agree to a reasonable rate that allows the carriers to be profitable and gives shippers the services they need?
It has become hard to tell who the real the villain is in this tired old soap opera.