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Ocean carriers' service cutbacks are forcing shippers to book further in advance and pay higher rates to keep their containers from being left on the dock.

"Last year, you could pick up the phone and book a shipment with a lead time of a week or less. Now it's three weeks, maybe more," said Klaus Schnede, manager of marine, air and facilities procurement at Eastman Chemical in Kingsport, Tenn. "And everybody and his brother wants more money. Some lines say, ‘If you want space, sure you can have space — pay me.' "

Ocean carriers normally reduce services during the slack winter months following the fall peak season for holiday imports. This year's seasonal reductions are deeper than usual as carriers apply pressure for rate increases some lines say they need to survive.

The Transpacific Stabilization Agreement, representing most Asia-to-U.S. carriers, in December said its members had agreed on an "emergency revenue" program" to help carriers stay afloat until the next annual service contracts begin May 1. The TSA plan proposed a $400-per-TEU increase Jan. 15.

Carriers have idled ships, combined services and eliminated vessel strings in an effort to reduce losses expected to total nearly $20 billion globally in 2009. AXS-Alphaliner said 11.6 percent of the world container ship fleet was idle at the start of this year.



Shippers and non-vessel-operating common carriers say capacity cutbacks are causing more containers to be "rolled" to subsequent voyages. "This contrived capacity shortage is really causing concern," said Michael Boneck, president of Lasko International (HK), which produces electric fans, space heaters and other products. "I haven't been burned too badly so far, but it's requiring a lot more management than it used to." Gordon Lee, president of Steamline Shippers & Affiliates, an NVO, said the capacity squeeze was tightened by shippers rushing to book shipments in advance of the Jan. 15 rate increase and the Feb. 14 start of the Lunar new year, when Chinese factories shut down. "Everybody's been trying to put containers on vessels before that," he said. For many shippers, this strategy isn't an option. "Our members have longer-term cycles from order to production and shipping, and it's not so easy to suddenly say you're going to ship earlier," said Hubert Wiesenmaier, executive director of the American Import Shippers Association, which negotiates for apparel and footwear companies.Wiesemaier said carriers appear to be considering rates in allocating tight space, but that his members seem to be affected less than other importers because apparel "still pays a comparatively good rate even in a depressed market." Vessel space is in short supply almost everywhere, but may be tightest on all-water routes between Asia and the U.S. East Coast. The CKYH alliance of Cosco Container Lines, "K" Line, Yang Ming and Hanjin Shipping recently cut winter capacity by 10 percent from Asia to the West Coast and by 20 percent to the East Coast. The Grand Alliance and New World Alliance also have announced seasonal cutbacks. So have individual carriers such as Maersk Line. "We were told this was coming as far back as October, so it wasn't a surprise to anyone," Schnede said. "What was a surprise was how fast it happened. It was pretty much overnight in December." He and other shippers said the tightened capacity combined with an uptick in shipments in the final weeks of 2009.
Eastman relies primarily on South Atlantic ports for exports from its Kingsport, Tenn., plant. Schnede said he has been able to secure space by booking further in advance and working with carriers with which Eastman has longstanding relationships.

"It has made life more difficult for us, but we're getting space as long as we do the long lead times. And if we have exceptions, we're usually being accommodated because of the relationships we have," he said. "We've received assurances that you pay the right amount, you get space. You just have to pay enough."

Schnede sympathizes with carriers' plight. "Losing up to $20 billion in 2009, I'm sure, is not a fun thing to do," he said. But he said sudden rate swings are hard on shippers selling products under long-term contracts.

Wiesenmaier said container lines appear to be moving toward marginal pricing like that used by passenger airlines that charge higher fares when seats become scarce. But he said that pricing model doesn't work as well for containerized cargo.

"We're not visiting Aunt Martha someplace," he said. "Our members are placing orders for several months from now. When their goods arrive, they want to be sure their cost base is the same as they have anticipated."

Contact Joseph Bonney at jbonney@joc.com.

 

Source Citation
Bonney, Joseph. "Shippers Face Capacity Squeeze." The Journal of Commerce (2010). Academic OneFile. Web. 23 Mar. 2010.
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