First quarter cargo demand from Asia to the U.S. caught both container lines and their customers off guard, but carriers say they are now adjusting to what appears to be modest but sustained economic and trade growth through 2010.
The Transpacific Stabilization Agreement (TSA) report a total first quarter 2010 Asia-U.S. lift for all carriers of 1.27 million 40-foot containers (FEU). That figure, developed from PIERS reporting service data, represents nearly a 13% increase over container cargo shipped during the first quarter of 2009, although this is still below the comparable volumes for the same period in 2008. Internal reporting by TSA carriers shows a 24.1% year-on-year increase in traffic during the month of May alone, to the U.S. West Coast and a 30.8% increase in all-water shipments to the East and Gulf Coasts via the Panama Canal.
The National Retail Federation forecasts an average 12.6% year-on-year increase in retail import shipments through U.S. container ports for the June-October period, with individual monthly increases touching 15% in June and September.
“Neither shippers nor carriers were certain as to what direction the market would take coming out of the Lunar New Year holidays,” said Eng Aik Meng, APL Ltd. President, Liner. “Now it appears that the worst is behind us. Despite a pull-back in U.S. job creation and retail sales in May, the pipeline of Asian exports to the U.S. is filling rapidly and consumers are more optimistic over job security and household incomes going forward.” Mr. Eng emphasized that, while headlines have focused on peripheral issues such as European debt and U.S. tax and regulatory developments, many of the underlying fundamentals in the U.S. economy are positive: industrial production and durable goods orders are up, trade is expanding, inflation is low.
Revenue, meanwhile, remains a concern for carriers that together lost more than $15 billion in. “Lines found themselves on the brink of failure last year, and it was a sobering experience,” said Y.M. Kim, president and CEO of Hanjin Shipping Co. “It is no longer strictly a question of supply and demand in the market; all carriers have excess capacity and new vessels on order, and that’s a net positive as global trade improves. After last year, no carrier is going back to operating vessels underutilized and at non-compensatory rates. Every sailing and every equipment turn will have to be economically justifiable.”
While revenue gains made by carriers in recent months have made an important contribution to carrier balance sheets, carriers say the increases achieved in the current contract round still do not fully restore rates to the levels of late 2008, let alone provide for long-term viability and service expansion. In addition, to cover the costs of the expected robust peak season, individual TSA lines reaffirmed implementation of a previously announced Peak Season Surcharge.
“Although the long term economic outlook still remains unclear, carriers are now seeing a strong peak season surge that could last for some months” Mr. Kim added. “More than ever, they need the PSS to prepare for service contingencies and to meet schedule and delivery commitments on a sailing-by-sailing basis, and also to cover increased existing operating expenses, and the increased cost of capital.”
TSA carriers acknowledged the difficulties many shippers have had going into second quarter 2010, with space and equipment availability in Asia, as a result of the unforeseen surge in cargo volumes. Lines have individually adopted a range of strategies to address these issues, including reinstatement of key service strings, deployment of ‘extra loaders’ – vessels added on a per-sailing basis to carry loaded containers to the U.S. and reposition empty equipment back – and have also noted the use by some shippers, of transloading to keep ocean containers close to port for quicker turns.
AXS Alphaliner reports vessel capacity of more than 37,000 TEU returning to the transpacific market over April-May, and also that idle global containership capacity is at its lowest level since December 2008.
Equipment availability remains a global challenge, with demand and production having fallen off sharply during 2009. Where worldwide container manufacturing had averaged some 3 million TEU annually over 2004-08, it dropped to about 350,000 units in 2009. “A lot of the container production in China and elsewhere simply shut down last year and has been slow to ramp back up,” explained TSA executive administrator Brian M. Conrad. “Competition for owned and leased equipment among the major trade lanes has intensified.”