Transpacific Stabilization Agreement

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TSA Lines Move to Stabilize Rates,
Meet Cargo Demand


Carrier group predicts strong Q2 volumes and effective supply in line with demand; recommends June and July GRIs, peak season surcharge.


Oakland, CA / May 6, 2015 - Container shipping lines in the Transpacific Stabilization Agreement (TSA), reporting 3% year-on-year first quarter growth from Asia to the U.S., foresee an even stronger second quarter and a continuing need to imprrevenue and restore service levels as the West Coast congestion situation eases.

TSA indicated that stable, compensatory rate levels are key to meeting expected seasonal second quarter demand. As a result, member carriers are recommending $600 per 40-foot container (FEU) rate increases on June 1 and July 1, as well as a peak season surcharge (PSS) of $400 per FEU, to take effect on July 1. The increases, TSA said, are intended to counter recent erosion in market rates, while the PSS will help cover contingencies from seasonal cargo surges.

"The entire transportation and logistics sector is still digging out from a very difficult period, and all parties are eager to return to a more stable, predictable environment for moving goods to market," said TSA executive administrator Brian Conrad. "We're fortunate that the U.S. consumer remains strong, port throughput is improving, and operational chokepoints have eased. But it must be remembered that baseline service levels come at a cost."

Conrad emphasized that while overcapacity in the market will likely remain a consideration through 2016, it will not represent a major challenge. Responding to recently reported analyst forecasts predicting more than 20$ overcapacity on U.S. East Coast services and downward pressure on freight rates, he pointed out that in several aspects the underlying cpaacity analyses were based on faulty assumptions, including:

-- Using nominal shipyard-rate capacity of new vessels entering the trade and not the effective capacity after adjusting for vessel loading, berth and terminal capacity and other factors;

-- Double-counting services launched as much as a year ago, including services that carry significant sub-Continent or other out-of-scope cargo;

-- Overlooking the longer-term shift in demand to East Coast and Gulf Coast services, particularly via Suez; and

-- Assuming that most traditional West Coast traffic will return to West Coast ports once the current congestion situation ends.

"Our carriers see a very different set of facts on the ground," Conrad said, "with perhaps a 15% net capacity increase in a market segment that grew by 10% over last year and by an annualized 22% in the first quarter of 2015 = nearly half of that the result of organic growth, not congestion-related cargo diversion." He added that East/Gulf Coast vessel utilization remains in the 95-100% range as of mid-April, and that lingering uncertainty over how much discretionary cargo shippers will resume shipping via the West Coast makes it essential that carriers be prepared for contingencies going forward.

TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the U.S.


TSA Members:

APL Ltd.
China Shipping Container Lines
CMA-CGM
COSCO Container Lines, Ltd.
Evergreen Line Orient
Hanjin Shipping Co., Ltd.
Hapag-Lloyd AG
Hyundai Merchant Marine Co., Ltd.
Kawasaki Kisen Kaisha, Ltd. (K Line)
Maersk Line
Mediterranean Shipping Co.
Nippon Yusen Kaisha (N.Y.K. Line)
Overseas Container Line, Ltd.
Yangming Marine Transport Corp.
Zim Integrated Shipping Services


Contact:
Niels Erich
T: (415) 525-4520
E: n.erich@comcast.net


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