Cost to ship from Asia may rise as much as 30%
By Sarah Stone -- Purchasing, 12/10/1998 2:00:00 AM
A consortium of container shipping companies, the Transpacific Stabilization Agreement, has decided to raise its rates for shipping from Asia to the U.S. by as much as 30%. The demand for space is so strong in the face of the current trade imbalance, and the market for U.S. goods so weak in Asia, that the companies consider the rise justified. The earliest the new rates can apply is May 1, which is the same time the new ocean deregulation legislation goes into effect.
The Transpacific Stabilization Agreement comprises 13 carriers, including Sea-Land Service, Evergreen Marine Corp., A.P. Moller-Maersk, and Neptune Orient Lines, among others, and controls some 85% of Pacific shipping.
The plan calls for a large rate hike of at least $900 per 40-foot container from Asia and India to West Coast ports, and at least $1,000 for other U.S. ports, plus a $300-per-container surcharge for the peak season (June through the end of November).
When deregulation goes into effect May 1, however, shippers will be able to enter into confidential contracts that may undercut shipping groups' ability to set prices. Each shipper will have the ability to negotiate its own rates with the carriers, without necessarily adhering to a preset pricing schedule.
Carriers are counting on a repeat of this year's peak season, which saw shippers scrambling for scarce space on U.S.-bound ships. Because the dollar has held relatively steady while Asian currencies have tumbled, Asian goods are cheap and plentiful, while the market for American goods in Asia is almost non-existent. Many carriers found ways to add charges to existing contracts, according to shippers, and gave preferential space allocation to larger customers. These allegations are currently under investigation by the Federal Maritime Commission.
It is not currently economically efficient for carriers to simply add more vessels in order to clear the bottlenecks at Asian ports, as it would be if trade were brisk in both directions. Many ships are already making the return trip to Asia virtually empty.
This rise in rates will provide a test for the new shipping rules. There are several variables that can affect prices between now and then--most important, the state of the American and Asian economies. If the U.S. economy holds steady and Asia continues to have cheap prices, the carriers will likely find they can ask for higher prices and get them. But other variables come into play as well, for example, the ongoing problem with the Asian longhorned beetle. Environmental groups in the U.S. are actively trying to curb or even ban imports from China in order to prevent an infestation of the beetle, which has no known predators and could potentially devastate U.S. forests.
As of Dec. 17, all cargo leaving China or Hong Kong that is packed with hardwood pallets must pass inspection before leaving port, but some groups do not consider the measures stringent enough. A more inclusive ban on Chinese imports could wreak havoc with the new pricing.
Shippers are concerned and in some cases incredulous over the proposed rate hike. Even shippers who are sending cargo to Asia instead of from it, and are rejoicing in the current low cost to get American goods to the ports of China, Hong Kong, Japan, and India, are paying close attention. "I'm worried by the current whipsaw effect of shipping rates," says Richard Dodd, manager of worldwide transportation for M-I LLC, a company that ships bulk metals and petroleum products overseas. "My job is to make sure rates stay as constant as possible. If prices are this low on my end right now, and this high to the U.S. from Asia, who knows where they'll be next year?"
According to other sources, the most important factor determining whether shippers will be able to get good rates is not what the carriers say are the going prices, but the degree of sophistication the shippers bring to the bargaining table. With pricing no longer necessarily being open to the light of day, a shipper needs to know what the options are and when to walk away. "A lot of small to medium-size shippers will probably do better with a third-party logistics partner. That will give them better access to market intelligence," says Arnie Bornstein of BPL International.
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