TSA Recommends Container Rate Hike

Member shipping lines in the Transpacific Stabilization Agreement (TSA) have announced an increase in rate and fee guidelines for 2016-17 service contracts which are intended to ensure price and service stability, TSA says.

TSA lines are recommending increases in minimum rates across the board, to $950 per 40 foot equivalent unit (FEU) to the U.S. West Coast and $1700 per FEU to the East and Gulf Coasts on December 1, 2015. The price will rise to $1200 to the West Coast on January 1, 2016.

The carriers say they intend to establish higher baseline levels as they begin service contract negotiations, and wish to have the guidelines in place well before the Chinese New Year in February 2016.

“Transpacific lines are adjusting to a new normal of larger ships and complex alliances, necessitated by cost and environmental compliance pressures – all in the context of an uncertain global economic environment,” explained TSA Executive Administrator Brian Conrad. “Irrespective of cyclical supply-demand issues, it is critical that . . . [shipping companies] fully recover their costs through meaningful, staged rate increases heading into 2016.”

TSA has also finalized its 2016-17 service contract guidelines, which will focus on revenue through both rates and fees. For all 2016-17 service contracts, most of which take effect on May 1, TSA lines are recommending longer-term minimum rates of $1,700 per FEU to the West Coast, and $2,900 per FEU to the East and Gulf Coasts.

Container rates have been in free fall in 2015, putting great pressure on container shipping companies and sparking a wave of mergers and aquisitions, including planned tie-ups between majors like COSCO with CSCL and CMA CGM with NOL.

In addition, the contract program will include adjustments to fees and practices in areas such as absorption of chassis costs; free-time allowances; port and rail demurrage charges; equipment detention and per diem; full recovery of current and projected trucking costs; intermodal pricing; credit policies; and contract boiler plate terms.

“Lines have learned the hard way that small concessions to a customer here and there expand quickly across the trade and add up, over time, to a lot of money left on the table,” Conrad said.

Another area of concern is that larger linehaul vessels making fewer port calls have led to higher feeder service and other transshipment costs in maintaining route coverage throughout Asia.

Lines will be reviewing their schedules of feeder port add-ons in light of rising costs, and will make specific adjustments to those add-ons as warranted in upcoming contracts, TSA says.

Fees in addition to base rates have been of great concern to Chinese trade authorities in recent month. Analysts say that the Chinese government views shipping fees as a barrier to slowing exports and has been cracking down on the practice. Several major lines have announced fee reductions in recent months, and in November government authorities reportedly raided line offices in Shanghai in an attempt to determine the extent of the practice.

TSA is a trade group of major container shipping lines serving the trade from Asia to ports and inland points in the U.S., and includes top ten lines like CMA CGM, COSCO, Evergreen, Hapag Lloyd, and Maersk.