TSA goes through with rate requests

By Staff -- Purchasing, 2/22/2001

Members of the Transpacific Stabilization Agreement are going forward with their call for new rate hikes, saying that there is no evidence that a slowing U.S. economy is impacting ongoing demand for service out of Asian ports.

The members hope ocean cargo carriers will follow their lead and push for the new rate increases on May 1.

But the National Industrial Transportation League is digging in its heels, saying ocean cargo carriers should pay no attention to the agreement's stance. The league says carriers need to stick to the standards of the deregulated ocean shipping environment and make their own contracts with manufacturers.

"It should be irrelevant what the TSA says," says Peter Gatti, vice president for international relations for the league. The league represents the manufacturers who turn to ocean cargo carriers and other modes.

"The real issue is what the individual lines and customers agree to, what makes sense for the customer," Gatti says.

The California-based agreement, a voluntary discussion and research forum of 14 major container shipping lines serving the trade from ports to destinations throughout Asia, called for new rate increases in October 2000. Its recommendations are voluntary and non-binding, since the Ocean Reform Act is pushing the industry toward customization of service. In the deregulated environment, the majority of ocean cargo moves under service contracts. Shippers and carriers negotiate rate agreements in confidential negotiation sessions.

Despite a slowing U.S. economy, the agreement says cargo growth in excess of 10% is expected in the Asia-to-U.S. market this year. In order to deal with rising service costs, it is recommending a general rate increase effective May 1. The recommended level of increase will vary. According to the plan, rates would be raised by:

• Five hundred and twenty-five dollars per 40-foot container (FEU) for shipments moving from Asia to U.S. West Coast ports,

• Six hundred dollars per FEU for shipments to points throughout the U.S. West Coast states of California, Oregon and Washington,

• Six hundred dollars per FEU for shipments to East Coast ports via all water or multi-landbridge service, and

• Seven hundred and fifty dollars per FEU for shipments for inland point intermodal and reverse-IPO cargo.

The lines have likewise adopted a guideline recommending a $300 per FEU peak-season surcharge from July 1 through Oct. 31 of this year. This would be applied to all eastbound cargo moving on TSA member vessels. They also recommended a guideline to recover costs through a new chassis charge, which became effective on Jan 1, for all tariff cargo. On May 1, it will be for all service contract cargo.

The agreement met during the last week of January in order to reaffirm its stance, and it did so at time when many analysts are predicting a downturn in the U.S. economy. But Albert Pierce, executive director for the agreement, says the agreement characterizes economic forecasts for this year as a return to normal growth levels in the 5% to 6% range. Pierce says the U.S. economy is slowing down, but is obviously showing signs of continued strength.

The agreement is bolstering this argument by pointing to cargo volume increases for the past few years. It is noting that January through November 2000 ocean cargo shipping volumes were up about 14% over the same period in 1999, and new vessel capacity is expected this year.

U.S. Customs data indicates that cargo volumes from Asia to the U.S. increased steadily since 1998. The volumes totaled 2.65 million FEUs in 1998, up 17.5% form the previous year. The volume increased to 2.97 FEUs in 1999, up 12.1% over 1998.

Cargo volumes totaled 3.28 million FEUs from January through November 2000, up 14.8% during the same period in 1999.

In 2000, the top 10 commodities being shipped showed steady increase in container volume shipments since January 1999. Forty-foot container volume of consumer electronics showed an increase of 22.3%, for example, and computer/business machine FEU shipments were up 5%. None of the top 25 commodities in the trade showed a decline between January and November 2000.

The agreement does not believe this pace will slow dramatically in 2001. Based on this prediction, Pierce says the agreement has a right to go forward with its rate increase recommendations.

Container volume