With Transpacific Stability Agreement (TSA) general rate increases (GRIs) implemented over 2014 largely failed to hold ground. Members of the 15-member carrier group are collaborating on a pricing plan that will establish minimum rate levels in hopes of creating a more stable rate structure for the 2015-2016 trade year. The group will concentrate on hitting higher contract rates in 2015 and 2016, rather than relying on GRIs. The implementation of GRIs over the course of 2014 shows the instability of a market fluctuating in demand and general overcapacity. The rate hikes are meant to alleviate some of the added costs associated with higher intermodal rates and additional fuel costs caused by tighter emissions regulations and bigger vessels.
Among the changes that will be adopted by TSA’s 15 member lines:
- Contract rate objectives for 2015-16 rather than scheduled general rate increases (GRIs) from varying baseline levels
- Rates for 20-foot and high-cube 40-foot containers that more fully reflect cost impacts in loading and handling
- Full recovery of rising intermodal costs due to inland transport capacity and congestion issues; a revised bunker surcharge formula more accurately reflecting current vessel size and fuel consumption.
- Recovery of low sulfur fuel costs as tighter emissions standards take effect in January 2015 for vessels operating in North American coastal waters.
“Rate minimums are an effort to better reflect actual costs of service, rather than simply recommending a specific increase to whatever baseline rate is in the tariff based on short-term supply-demand conditions,” TSA Executive Administrator Brian Conrad said.
“Rates will continue to fluctuate with the market according to origin-destination pairs, service requirements, routing and so on, but a common base guideline is essential for lines to maintain basic service levels and, beyond that, expand their offerings based on customers’ needs.”
Specifically, The TSA is recommending to its members:
- From North Asia: Conclude 2015-16 contract rates at levels at or above $2,000 per FEU to the West Coast and $3,500 to the East Coast.
- From Southeast Asia: Achieve rates at or above $2,150 to the West Coast and $3,650 to the East Coast.
- Intermodal base rates: Will vary by destination, but as an example the TSA is proposing 2015 CY rates to Chicago-area ramps to be at least $3,900 from North Asia and $4,050 for Southeast Asia.
- Minimum rates for other equipment sizes: Base rates for 20-foot containers (TEU) will be assessed at 90 percent of FEU rates. High-cube FEU base rates will be charged a premium of at least $50 over the 40-foot standard rate for the West Coast and $100 over the 40-foot rate for all other destinations. The TSA said these changes reflect the greater cost impacts from the handling of different container sizes as load and discharge patterns in port become increasingly complex and time-sensitive.
We will provide an update as more information on the TSA 2015-2016 pricing strategy is finalized.