Shipping Industry Predicts Increased Rates to Offset Costs
LONG BEACH, Calif.—Ocean freight rates were in a downward spiral last year but will veer slightly upward this year as shipping lines take delivery of a number of large vessels ordered in 2007 and 2008.
That was the word at the 12th annual Trans-Pacific Maritime Conference, organized by the Journal of Commerce and held March 4–7 at the Long Beach Convention Center.
This year’s conference attracted more than 1,800 attendees from the shipping, logistics, trucking, rail and retail industries. The four-day event analyzes the economic past and future of the shipping industry and addresses such things as port improvements, shipping fleets and competition with an expanded Panama Canal.
The shipping industry had a banner year in 2010, making $20 billion, because companies around the world replenished their inventories that shrank during the economic tough times of 2009. But the shipping industry floundered in 2011, losing $5.2 billion as economic growth slowed.
This year will be a mixed year. Traffic on the trans-Pacific route between Asia and the West Coast of the United States is predicted to increase 3 percent, but it will be flat on the Asia-to-Europe route. Europe, with its sovereign-debt problems, is expected to enter a mild recession this year and reel in consumer spending.
Overall, global cargo-container traffic will inch up 5 percent because of robust economic activity in emerging economies such as Brazil. “If we say that 2010 was a surprise year and that 2011 was a disappointment, I don’t think 2012 will be awful,” said Wei Jiafu, chairman of Chinese Ocean Shipping, known as Cosco Group.
His optimism, he said, is based on a predicted 2.3 percent increase in the U.S. gross domestic product and a robust 7 percent to 8 percent growth in the Chinese economy. In China’s recent five-year economic plan, the government mandates an annual 13 percent rise in the minimum wage, giving Chinese consumers more money to spend.
Wei noted that the Chinese population is slowly growing more prosperous. The per capita income in urban areas, such as Beijing and Shanghai, is now up to $12,000 a year. The rural areas lag behind, with a per capita income of $2.500. “For the first time, China’s urban population rate exceeds the rural population,” he said.
Shipping lines believe that if freight rates don’t start rising soon, companies will be swimming in red ink again this year. In 2011, freight rates dipped 25 percent, hitting a low in December of $1,400 per 40-foot container traveling from Hong Kong to Los Angeles.
Late last year, the Transpacific Stabilization Agreement, a trade group that encompasses 15 shipping carriers that plow the trans-Pacific route, recommended a general rate increase of $400 per 40-foot container, which went into effect in January.
The Oakland, Calif.–based group is suggesting a second rate increase, of $300 per 40-foot container, effective March 15.
“We have a long way to go to cover where we were in April or May last year,” said Brian Conrad, the TSA’s executive administrator. With higher bunker fuel prices now at more than $720 a metric ton, he said, it now costs carriers about $2,500 to ship a 40-foot container from Asia to the West Coast.
The shipping lines are partly responsible for the low rates. Currently, they have an over-capacity problem as they take delivery of larger ships that carry more than 8,000 containers that measure 20 feet in length. The larger ships are more efficient, burning less fuel than smaller ships, but there is not enough business to keep them busy.
Some carriers are starting to take some of their older ships out of service to alleviate the problem.—Deborah Belgum
