Will 2015 be the year that ocean carriers serving the major east-west trades find a new formula to increase rates? Clearly, the pricing strategy of base rates, general rate increases, peak-season surcharges, fuel surcharges and terminal charges did not deliver the desired results in 2014 for most carriers. In the eastbound trans-Pacific, the leading carriers say they will adopt a new approach to service contracts negotiated in 2015 that will emphasize minimum rate levels.
The Transpacific Stabilization Agreement is recommending its member carriers fix 2015-16 contract rates at a minimum of $2,000 per 40-foot container to the West Coast and $3,500 to the East Coast from all North Asia ports. These minimums will form a baseline for minimums from Southeast Asia ports, and to intermodal points. If the TSA carriers can find a way to write these minimums into their service contracts and tariffs, the impact on rate levels would be significant. The weekly Drewy Container Rate Benchmark for the trade from Hong Kong to Los Angeles was above $2,000 per 40-foot container for only 12 weeks in 2014.
Minimum rate levels will not eliminate surcharges, which will remain critical components in cost recovery for ocean carriers. Fuel surcharges will increase in 2015 because of new MARPOL emission control regulations that require vessels steaming within 200 miles of the North American coast to burn fuel with a sulfur content of 0.1 percent.
Most shipments from Asia to U.S. West Coast ports will pay a low-sulfur surcharge of $53 per 40-foot container during January-March 2015, versus just $16 during the last quarter of 2014. While bunker costs were stable in 2014, the cost of low-sulfur fuel at U.S. West Coast ports increased significantly. In November 2014, carriers paid $303 per ton more for the low-sulfur fuel than for standard bunker fuel. Increased demand for low-sulfur fuel in 2015 will likely increase its cost, and prompt further increases to this surcharge.
James E. Devine Jr., President, Distribution-Publications