From: David Hickmott
[DHickmott@uli-atl.com]
Sent: Saturday, November 03, 2007
2:17 PM
To: David Hickmott
Cc: David Hickmott; David Hickmott
Subject: TSA raising rates, surcharges,
alters contract timing to recover fuel costs
Dear Valued Unique Customer,
The below article is from the American Shipper. It is very comprehensive in terms of detailed plan of action from the transpacific carriers (Asia-USA Trade) with regard to next year’s contract planning, general rate increase, fuel surcharges, and peak season surcharges. The suggested general rate increases (GRI) and PSS are similar to the levels announced from last year. Of particular significance is the idea of floating monthly BAF (ocean fuel) which has fluctuated significantly in the past year. This factor is significant as it hinders the ability of the importer to pinpoint cost of transportation for long-range planning. A current listing of the TSA surcharges can be found at the following link: http://www.tsacarriers.org/current.html The customers of Unique Logistics International were fortunate to have the BAF fixed at a lower level of much lower level during the year.
As we get closer to contract time in next few months, the market will likely take more shape. Historically, the carriers have shifted capacity from Asia/USA trade to other trades during slack season to keep a balance of supply/demand and stability in prices. The article below suggest the same will be implemented in coming months.
Unique Logistics International will keep our customers informed of any further changes with regard to the announced TSA plan. Meanwhile, we would suggest to be guided by the below plan of TSA cost changes when planning/budgeting for upcoming year.
Thank you for
your support of Unique Logistics International. We appreciate and value
your business!
Best Regards
David Hickmott - Executive Vice President
ph#404-767-0500 (ext 306)
Mobile# 678-478-6604
Fax# 404-767-3319
TSA raising rates, surcharges, alters contract timing to recover
fuel costs
Member shipping lines of the Transpacific Stabilization Agreement have set
forth a cost recovery program through 2009 that advocates steep rate and
ancillary charge increases as well as changes to the timing of service contract
negotiations.
TSA also said it will include provisions in upcoming contracts
“that will enable them to recover increased West Coast trucking costs which may
arise from legislative and/or regulatory changes, such as implementation of the
transport worker identification card and the proposed Los Angeles-Long Beach
harbor truck plan.”
As for rate and surcharge increases, TSA is recommending freight
rate increases of $400 per FEU for U.S. West Coast port-to-port and door cargo,
and $600 per FEU for all other traffic, including intermodal and U.S. East
Coast all-water shipments.
The association is also recommending restoration of a floating
bunker fuel surcharge -- “broken out from base rates and adjusted on a regular
basis to reflect bunker fuel price fluctuations -- in all contracts that have
had bunker surcharges mitigated, capped or folded into base rates.”
A peak season surcharge of $400 per FEU has also been recommended
on all shipments from June 1 through Oct. 1, 2008, subject to adjustments
relating to the timing, duration and strength of the 2008 peak season.
Also of significance is a planned change in the schedule of
contract durations.
“TSA lines also intend to modify the timing of service contracts,
extending 2008-2009 contracts by an additional two months, to expire on June
30, 2009,” TSA said. “This will give shippers the benefits of two additional
months at 2008 contract rates, and will also mean that future 12-month
contracts will have July 1 start dates.”
The member lines said in a statement that the hefty rate and
surcharge increases are required to “address rising operating costs in the
coming year, including record marine fuel prices in 2007-2008.” The rate
recovery is needed to fund asset and service expansion necessary to cope with
growing levels of transpacific trade.
“We’ve already seen significant carrier redeployments that reflect
the deteriorating economics in the high-cost transpacific market, relative to
other trades,” said Ron Widdows, TSA chairman and APL chief executive officer.
“Given cost increases expected through the end of 2007 and into 2008, and the
potential for service disruptions, there’s an obvious and compelling need for a
viable rate structure that encourages adequate carrier reinvestment.”
In stark contrast to the exploding Far East/Europe trade, volume
growth and rates have been relatively flat for carriers in the transpacific,
especially in the context of the past half-decade.
Transpacific container lines still anticipate a 7 percent to 8
percent increase in basic operating costs apart from fuel -- inland rail and
truck charges, container handling at destination U.S. ports, and repositioning
of empty containers back to Asia after cargo has been delivered at U.S.
interior points, according to J.S. Lee, senior executive vice president of
Hanjin Shipping and a member of TSA’s executive committee.
He also said carriers must address increased costs that were not
recovered in current contracts, and that restoring carrier revenues to
sustainable levels of profitability cannot be done in a single year. In other
words, the market should be prepared for a continuation of this initiative in
2009-2010 contracts.
A TSA survey of member line operating costs relative to freight
rates shows current rate levels well below breakeven costs for nearly all
carriers on most route segments.
Fueling the cost recovery concerns is, of course, fuel. With the
price of oil edging toward $100 a barrel, “bunker fuel prices rose by 34
percent during the first nine months of 2007 alone, from an average $295 per
ton in January to an average $395 per ton during September,” TSA said. “An
internal TSA survey reveals that this $100 per ton difference in price --
taking into account typical vessel capacity, actual lift based on effective
capacity and utilization, fuel loading prices, fuel consumption per day,
sailing time and a prorated share of fuel cost for repositioned empty
containers -- translated into a $132 million increase in aggregate fuel costs
paid by TSA lines in September over January to move the same volume of freight.
In October fuel prices reached record levels and an average for the month of
$436 per ton, suggesting an aggregate fuel bill of about $150 million higher
than in January 2007.”
While TSA has already been assessing a bunker surcharge, it hasn’t
been enough, the member lines said.
“Increases in the TSA bunker surcharge, from $455 per FEU in
January to $680 per FEU in October, only partially addressed these rising
costs, due to the lag time in calculation and to the pace and extent of fuel
price increases,” TSA said. “And in a number of contracts, caps and other
restrictions even further prevented meaningful cost recovery as fuel prices
spiked throughout 2007.”
While shippers likely wouldn’t begrudge the individual carriers
for trying to recover operating costs, the method in which the costs are
recovered is likely to receive even greater examination in light of decreasing
antitrust immunity privileges for carriers in other trade lanes. Carriers
serving trades to and from Europe won’t be able to collectively discuss
operating cost recovery mechanisms after October, and antitrust exemption is
also being taken away in China in 2008.
TSA spokesman Niels Erich told American
Shipper in October that the TSA won’t be affected by changes in
China’s antitrust regulation since it is not technically a conference, but
rather a discussion agreement and rate increases are not binding.
Meanwhile, Widdows said he understands the concern of TSA’s
customers over rising rates, but that customers must understand the dynamics of
escalating fuel prices for long haul transportation providers.
“Lines will, of necessity, be pressing the issue of a full,
floating bunker charge very seriously in upcoming contract negotiations,”
Widdows said. “We understand that this is a major item in the overall rate
structure and that shippers are looking for pricing stability over the 12-month
contract term. But the market must understand that fuel prices are far too
volatile, and ocean carriers are far too exposed to fuel cost fluctuations over
a 7,000 to 10,000-mile, 12- to 18-day one-way sailing, to lock in a single
price for a year.”
Noting that airlines, railroads and truckers all collect full,
floating fuel surcharges, he added that container lines are particularly
vulnerable to fuel cost impacts, and failure to recover those costs amounts to
a hidden subsidy imposed on them.
“At current price levels, fuel is no longer just another cost
component,” Widdows said. “We’re at a point where service levels at minimum
and, for some carriers, financial viability are threatened if we are not able
to share these costs more equitably with the customer base. It’s not a
sustainable situation.”
Independent industry analysts forecast 7 percent to 9 percent
cargo demand growth in 2008-- the same or slightly higher than predicted for
2007. TSA said it anticipates new transpacific vessel capacity to increase by
5.2 percent among its members, and 6.3 percent across the entire trade.
“Allocations of new capacity are being driven by the high-growth
Asia/Europe and intra-Asia trade lanes, with smaller ships cascaded out of
those trades accounting for much of the new capacity scheduled for the transpacific,”
TSA said.
Widdows added that shippers are already looking to their carriers
to help them avoid potential delays in 2008 as longshore labor negotiations
intensify on the U.S. West Coast toward a July 1 contract. Asian terminals are
additionally experiencing congestion and delays as demand outpaces expansion
throughout the region, even though there has been some reduction in the pace of
growth in volumes to the U.S.
“There will be many variables affecting service and schedules next
year, making service choice and contingency planning all the more important,”
he said. — Eric Johnson