TSA warns transpacific trade not profitable despite volume growth

Container shipping lines participating in the Transpacific Stabilisation Agreement (TSA) have met in Taipei last week to discuss the Asia-US cargo market for 2008-09.

They found that the Asia-US trade has moderated but is still registering healthy cargo growth, capacity growth aligned with cargo volumes, shift to US east coast all-water service in the run-up to longshore labour talks and there is an ongoing need for rate restoration.

In July, Asia-US liftings for TSA lines totalled 480,000 FEU, up 8.6 per cent from the 442,000 FEU carried in July 2006. Cargo volumes in the first half of 2007 were up by 7.1 per cent from the same period a year earlier, reflecting a 6.3 per cent increase to the US west coast and a 9.9 per cent increase to the east coast.

Carriers are forecasting a continuation of current trends, with 7-8 per cent cargo growth for all of this year.

"While growth has moderated, first half year over year growth remains healthy and we continue to hear from our customers that their projections for the balance of 2007 and into early 2008 are for the current growth trend to continue," said TSA chairman Ronald Widdows.

The struggle to remain profitable in the transpacific market has been a major influence in carriers' individual asset deployment decisions in both 2007 and 2008. Such decisions have been taken in the context of forecasts for dramatic improvement in economic conditions in a number of other trades globally, a statement from TSA said.

"Container lines are more likely to focus investment and vessel assets in trades that generate an adequate return," Mr Widdows said, "and for many carriers, whether members of TSA or not, the transpacific is a more challenging trade in which to operate profitably."

TSA forecasts 5.2 per cent capacity growth in 2008 for its members, and 6.3 per cent for the trade overall - and possibly less when winter season deployments are factored in. These typically see vessel drydocking and other service changes during the first quarter each year.

"Frankly, carriers did not achieve the revenue improvement sought in recent negotiating," Mr Widdows said. "West coast local rates remained relatively flat, intermodal rates increased by an average of US$300-$350 per FEU, and east coast all-water rates rose by $100-$150 per FEU, well below the level required to have the industry operating at a profitable level. Those cost pressures have not gone away, and for many cost elements the pressures have simply continued to escalate. Ocean carriers are being severely squeezed in every area of their operations, from fuel consumption to intermodal rail and trucking rates to environmental and security compliance."

TSA members are: APL, "K" Line, MSC, CMA-CGM, Cosco Container Lines, MOL, NYK, Evergreen Line, Hanjin Shipping, OOCL, Hapag-Lloyd, Yang Ming Marine Transport Corp., HMM and Zim.