TSA recommends minimum rates for service contract

Transpacific container lines are recommending an unprecedented schedule of minimum base freight rates from Asia to the US for upcoming service contracts. Member lines in the Transpacific Stabilization Agreement (TSA) said that establishing a floor on rates, in light of the recent flurry of reductions, would likely decide whether some lines continue to operate in the trade.

Despite initiatives previously announced by the TSA, efforts to curtail rate volatility during the traditional off-peak period have been largely unsuccessful, as carriers have struggled to respond to substantially lower cargo demand and the resulting overcapacity.

Senior executives with TSA carriers now must come to terms with a stark set of choices: Set their pricing at minimally sustainable levels, or see massive losses in 2009-2010 that will not only threaten their viability but also damage the service integrity in the trade.

TSA carriers have agreed to take a number of actions on a voluntary, non-binding basis:
Current spot rates initially set to expire on June 30, 2009 should now be expired on 30 days?notice from the earliest day possible, and by no later than May 15.

New minimum rates (per 40?container) should be applied in all contracts not yet concluded, as soon as possible but no later than July 1, as follows:
A minimum rate of USD 1,350/FEU to west coast ports.
A minimum rate of USD 2,500/FEU for all-water service to east coast ports.
A further minimum USD 100 premium for 40ft high cube containers.
Expiring of all 2009/2010 contracts signed by April 30, 2010.
All service contracts to be subject to the TSA? revised formula in calculating the floating bunker surcharge.

?ecent developments in the Asia-US freight market are truly disappointing,said TSA executive administrator Brian Conrad.

he minimum levels TSA lines intend to establish individually are well below where rates were this time last year, and in many instances below carriers expectations for cost recovery, let alone profitability.The unnecessary panic mentality that set in during the winter months will cost this industry heavily, if the rates we have been seeing continue to slide and are locked in over a period of months in new contracts.Independent UK-based industry analysts, Drewry Shipping Consultants, forecasts that the liner shipping sector worldwide stands to lose $68 billion in the coming year if the current rate trends are not reversed.

AXS Alphaliner, which tracks worldwide container vessel capacity, recently reported that the global cargo downturn has led to 11.3% of the world containership fleet?more than 480 ships with the capacity equivalent of some 1.4 million 20-foot containersbeing taken out of service to date. <Korea Shipping Gazette>