Good News In The Transpacific Liner Shipping Trade

Implications: Reports from the TSA indicate that their primary goal of the 2008 contracting season, floating fuel surcharges, has largely been accepted by shippers.  Their secondary goal, increases in the base freight rate, has largely failed.

Analysis: It has been a painful process for liner shipping companies in getting shippers to accept floating fuel surcharges in this rapidly escalating bunker price market.  The concept of service agreements, from a shipper's perspective, is to provide stability of rates as well as to secure slots.

Keep in mind that even floating surcharges will not provide complete relief for carriers.  The typical lag in adjustments means that they will be perpetually chasing that brass ring in a rising cost environment, but should limit the impact.  All in all this is welcome news for liner companies.

Base rate increases are much tougher in this market, will falling eastbound volumes.  Adding to the difficulty is the widespread earnings restoration reported by the liners in 2007.  However, the still-lucrative rates available on the Asia-Europe/Med trade lane means that some rate escalation was necessary to ensure available tonnage in the transpacific.  Further, cost escalations and currency losses on a falling dollar are transparent to shippers.

While fuel-neutral rate increases in all trade lanes are very modest, achieving better fuel recovery is a significant win for the industry.