TSA announces huge $500/FEU rate increase

July 7, 2009 by SwizStick  
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…for eastbound Pacific cargo.

HAHAHAHAHAHAHA….oh wait, you’re actually serious?

Shipping lines in the eastbound Pacific announced a huge rate increase effective Aug. 10 of $500 per 40-foot container, which would require an unprecedented renegotiation of service contracts if the lines can pull it off.

The Transpacific Stabilization Agreement, a discussion group of 14 carriers in the Asia-to-U.S. trade, said immediate action is needed to bring freight rates back to compensatory levels.

“The eastbound trans-Pacific trade lane has been driven by panic, and panic is difficult to stop once it has begun,” said W. W. Lee, chief executive for container line business at Hanjin Shipping.

The voluntary guideline announced Tuesday by TSA is likely to meet fierce resistance from shippers, many of whom have recently concluded service contract negotiations for the 2009-10 shipping season and are experiencing financial pressures of their own.

Emphasis mine. I predict “epic fail” for the carriers on this one. These guys are their own worst enemies. They went out tripping over themselves to cut rates in an effort to maintain or increase market share and now that they have belatedly realized that they have cut their own throats in the process they are going to try to turnaround and massively increase rates? It’s called the “market” for a reason, market conditions set the prices, not arbitrary pricing agreement groups. No shipper who recently signed contracts expected to carry them through the next 12 months is going to suddenly agree to a $500 per FEU increase – nobody is going to want to open up their contracts again, and certainly not for a price increase. Notice too that the increase is said to be “voluntary”. That usually means the carriers have wide discretion whether to introduce the price increase or not or whether to implement it fully. I don’t count on it happening.

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