Member shipping carriers of the TSA will first look for an increase of $300 per FEU on March 15, which will be subsequently followed by an increase of $500 per FEU on West Coast ports and an increase of $700 per FEU on all other ports from May 1. TSA, in a statement said “TheMarch general rate increase is intended to bring Asia-U.S. freight rates back up to near 2011 contract levels, establishing a baseline for upcoming contract negotiations.” Citing recent press reports and investor filings affirming losses in the shipping industry, the organization, emphasized on the fact that another increase will be “critical to carrier viability going forward”

The member shipping carriers of the TSA also indicated that other additional revenue as well as cost recovery measures will be considered, later during the year, after reviewing market conditions for the second half of 2012. Finally, shipping lines reaffirmed the requirement for service contracts in 2012 to be applied per-formula rate hikes for equipment of all sizes as well as to provide for the collection of floating fuel charges along with any other applicable cost based ancillary charges.

Executive administrator for TSA, Brian Conrad said “The erosion in transpacific rates during 2011 has been well-documented and dramatic.” He went on to say “If carriers adopt a marginal increase that only partially offsets huge losses as costs continue to rise, the result is another 18 months of losses. This year, in particular, rate recovery must be meaningful in order to maintain service levels and, ultimately, carrier viability.”

Photo: Lillian Cameron. This article may be reprinted provided that all credit information remains intact.

In the survey conducted by Norton Rose, an international law firm, 42 percent of the survey respondents said that lack of finances was the biggest threat to the shipping business. Several banks are keen on shedding dollar dominated assets like trade and ship finance loans in order to meet stricter capital rules and regulations imposed on lenders in the euro zone.
Global head of transport at Norton Rose, Harry Theochari said, “The past three years has seen a notable decline in the availability of bank lending to the shipping sector, and this has had a considerable impact on many shipping businesses”. Italy’s largest bank as far as assets are concerned, UniCredit, is scaling down their ship financing operations, in order to push up its capital reserves.

Almost a third of the survey respondents, i.e. 31 percent said that they expected their primary funding source for the next two years, to be private equity, while 18 percent said that their primary funding would be export credit agencies. However, 43 percent said that they still expected their primary funding to come from bank debt for the next two years.

Theochari went on to say, “Shipping companies are now looking beyond traditional forms of finance and are readying their businesses to weather further economic uncertainty over the next 12 months.”

The Norton Rose survey found 55 percent of the respondents believed that their main concern was to maintain cash reserves and find secure lines of finding, with around 56 percent planning mergers or joint ventures over the course of the year.

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The recently formed G6 alliance of shipping carriers has sped up the launch of their Asia Europe service by one month to March’s first week, to coincide with the steep increases in freight rates across the world’s largest trade route. This earlier start will also coincide with the launch date of a rival Asia Europe partnership between CMA, CGM and Mediterranean Shipping.

The G6 alliance said, “Customer response to the G6 alliance is strong, the latest economic condition in the trade supports the timing of the launch, and we are ready to meet the market’s expectations.”

The new G6 alliance, which was announced in late December (two weeks after the CMA CGM MSC partnership was announced), now

joins the Grand Alliance members – NYK, Hapag Lloyd and OOCL along with the New World Alliance members – APL, MOL and Hyundai Merchant Marine.

The new joint partnership services will come along with a new wave of freight rate increases by most major carriers averaging between $750 and $800 per TEU westbound to Europe, out of Asia, effective from the first of March.

The G6 alliance will begin six services running between Asia and Northern Europe during the first week of March. Ships will sail from Japanese ports, after consulting with the Japan Harbor Transportation Board and the labor unions. Another seventh service, covering the Bohai Bay ports in Xingang and Dalian, are also expected to begin as soon as sustainable trade conditions are realized.

The G6 alliance will continue with its existing Asia Mediterranean Express Service as well as also begin with a new Asia Black Sea Express service during April’s first week. The G6 alliance shipping carriers will be operating 90 ships with capacities of up to 14,000 TEUs, covering 40 ports.

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According to the recent Car Carriers report by Drewry, the rise in auto trade across the world has pulled the car carrier industry out of recession with much less damage as compared to what other shipping sectors had to experience.

Drewry’s report says that global trade, as far as motor vehicles are concerned will increase by around 3 to 4 percent a year over the coming 15 years, and the relatively low number of orders for car carriers will allow this sector to avoid the double dip being experienced by other sectors.

The economic downturn in 2008 and 2009 had adversely affected the car carrying freight lines, as their fleet’s capacity utilization dropped significantly. Car carrying freight operators are less likely to charter tonnage over long durations. Instead, they are emphasizing on total employment of the owned tonnage.

With a limited quantity of new ships going into service, the increased demand will be easier to meet and any excess in new capacity won’t hurt the operators, in the event that the economy retrenches. The report says, growth in trade may be reduced to some extent due to the shift to regionalized production. However, such a shift will, at the same time benefit seaborne trade of containerized auto parts.

Threats to vehicle trade may not realize anywhere in the near future, as Drewry’s report estimates that Japan, the leader when it comes to contributing to the global seaborne auto trade, will experience a significant growth in 2012-15, with European trade going back to its 2007 levels by around 2015. South Korea, the second in line after Japan in seaborne vehicle trading, will witness an average increase of a minimum of 4.5 percent over the coming 10 years.

Macquarie’s analyst says that new shipping alliances and vessel layups will help push container shipping rates up over the coming months, however, many shipping lines will still struggle to regain profitability.

The Panama Canal, which is now being made deeper and wider, has triggered fears of diversion of trade from the West Coast ports. At present, container freight ships from Asia, carrying cargo ranging from toys to iPods, pull into San Pedro Bay, from where they are again transferred to either the Port of Los Angeles or the Port of

Long Beach. After unloading, about half the cargo then goes to consumers in urban southern California, while the other half is then trucked to a railway yard and put on east bound trains to be distributed to the rest of America. However, with the Panamanians digging away at the canal, this part of the business, is at risk and along with it thousands of regional jobs.

Today, the Panama Canal accommodates ships that can carry up top 5,000 containers, while larger freighters can carry as many as 12,000 containers and the largest ones carry even more. This is why at present, the best way to ship cargo to New York from Guangdong Province is by first shipping it to Long Beach or Los Angeles and then getting it transferred through trains. With the Panama Canal all set to be ready for larger ships by 2014, a major part of the trade between the American east and Gulf coasts, and Asia will be diverted towards the Canal instead of California’s port. While this may be a boon for the East Coast ports of Miami, Charleston and Savannah, it can prove to be a bane for the West Coast. The California ports currently support around half a million jobs directly or indirectly.

So what can be done to set the situation right for the California ports? According to Port of Long Beach’s executive director Christopher Lytle, while floating cargo to the east coast from Asia will definitely be cheaper, unloading cargo at Long Beach and putting it on a train to New York will be faster. Speed is where the California ports can turn the situation to their advantage, particularly for time sensitive cargo like consumer electronics and fashion wear.

However, a lot needs to be done before speed can prove to be an actual advantage. The short trucked transfer of cargo to the rail yard needs to be eliminated, primarily because of the pollution and the clogged traffic on the I-710 freeway which wastes precious time. A closer rail yard could be the solution. But local politicians and environmentalists seem to be resisting the move for a newer and better rail yard. Environmentalist and National Resources Defense Council lawyer, David Pettit says that while he understands how the canal might hurt the West Coast ports, moving the rail yard to a new closer location and therefore polluting it isn’t the solution. He suggests putting the rail yard right in the docks. The port replies that it would require too much space. Both parties have only till 2014 to work things out and find a suitable solution.

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Maersk Line is all set to take increase in rates on Asia Europe trade lanes to a new high with the announcement of a $775 per TEU increase, effective from March 1. This increase by Maersk will push the freight rates to over double the present spot market price. The Danish carrier announced that the general increase in rate will be applicable on all dry as well as reefer cargo that are shipped from Asian ports to destinations in the Mediterranean and North Europe.

Meanwhile, Oriental Overseas Container Line also announced a general rate increase of $200 per container for cargo being moved from North Europe to Asia. The new increased rate comes into effect from February 15.

The increase in rates on the depressed Asia Europe trade lines, come as shipping lines report steep losses as a result of low rates and weak demands. In late 2011, the Shanghai Containerized Freight Index (SCFI) for Asia Europe trade lanes dropped below $500. It has since then increased to about $730 per 20 foot equivalent units (TEU). This figure is just about half of what the rate was this time during the last year.

In an attempt to prevent such losses in 2012, shipping carriers, including Hapag-Lloyd and Maersk have increased their rates for services originating from Asia and the rest of the Far East.

Hanjin Shipping, the first among the major shipping carriers to release their financial report for 2011, said that their container operations took a loss of $487 million in the previous year as high fuel prices and low rates offset higher volume. The South Korean shipping carrier is one of the first of a series of carriers who are expected to report steep losses over the coming weeks.

Hanjin’s loss during the previous year compares with an operating profit of $532 million in 2010 for its container division and an operating loss of $652 million in 2009 on containers. Hanjin’s container volume rose to 4.17 million TEUs in 2011 (an increase of 12.4 per cent), however, its revenue dropped by 2.6 per cent to $6.75 billion.

Poor results from Hanjin’s container shipping division were partially offset by the profits generated from Hanjin’s smaller bulk division, thereby resulting in $437 million in group wide operating losses. Its net loss stood at $729 million as compared to 2010’s $257 million profit.

Hanjin expects that the overcapacity set off by the delivery of larger container ships will continue in 2012. The company however, said that it “believes that the market will gradually grow stable due to shipping carriers’ efforts to improve profitability”.

The South Korean shipping company in a statement said “For the container business, there has been success in increasing freight rates at the beginning of the year and shipping carriers will continue to improve their profitability by increasing rates through service rationalization and taking various measures to reduce costs”.

Hanjin also said that it expects bulk shipping demand to recover with the renewed demands for iron ore in China.

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Many for-hire carriers have reported stronger than expected freight demands during the first few weeks of 1Q2012, spurred by the unseasonal warm weather. January was comparatively free from supply chain disruptions, usually caused by mid winter ice and snow storms, which significantly cut down weather related truck delays.

Also, according to Americas Commercial Transportation (ACT) Research, trailer orders increased by 38 percent in 2011 as compared to the previous year. Americas Commercial Transportation (ACT) Research, President and senior analyst Kenny Vieth said, “Rising (trailer) backlogs and low levels of cancellation activity speak to the strength of demand at the start of 2012”.

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The rising number of shipments for auto parts along with the recovery of demand for furniture has pushed up containerized imports in the United States by 2.4 percent during December, finally bringing the year to an end with a volume increase of 3 percent for 2011. The increase in containerized imports in December follows a 5.2 percent year over year increase in November. Imports during the fourth quarter rose by 1.5 percent year over year. East bound trans-Pacific imports however, dropped by 0.9 percent during the fourth quarter. Imports of auto parts rose by 19 percent during December, as compared to a year earlier, as auto production in the United States rebounds. Furniture imports, which account for 10 percent of the container imports, increased by 5 percent. Mario Moreno, economist at Journal of Commerce, said furniture imports seemed to have benefited from early indications of a stabilizing housing market. Moreno went on to say that housing is a key element for the continued growth of import volumes. Moreno said, “A pickup in sales of existing homes gives hope for a continuation of a rebounding furniture import trade in 2012, but a sharp decline of brand-new home sales in December reminds us of the fragility of this highly important housing recovery”. Apart from furniture and auto parts, import volumes in December for beer and ale rose by 24 percent year over year, for bananas imports rose by 15 percent and for miscellaneous metal ware, imports rose by 17 percent. Toy imports fell by 18 percent; women’s wear and infants wear dropped by 11 percent and computers by 10 percent.