TSA shipping carriers reveal ‘cost recovery program’

Next year, container shipping lines which are members of the Transpacific Stabilisation Agreement will take a new approach to rising cost and operational challenges, in particular, the new low sulphur regulations
TSA shipping carriers reveal ‘cost recovery program’

Transpacific Stabilisation Agreement shipping carriers have unveiled a new 2015 revenue and cost recovery program to deal with the cost and operational challenges arising in 2015-16.

Container lines in the Asia-US trade lane face inland rail and truck capacity shortages as well as higher mandated fuel costs from 2015 onwards. TSA say that the concerns of the carriers are reflected in its "new approach" at a time when many are preparing for the contract negotiations season.

Changes that will be adopted by TSA’s 15 member lines include: 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; and recovery of low-sulphur fuel costs as tighter emissions standards take effect in January 2015 for vessels operating in North American coastal waters.

With regards to rates, TSA is recommending that members seek to conclude 2015-16 contract rates, at levels at or above $2,000 per 40ft to the West Coast and $3,500 to the East Coast from all North Asia ports. For Southeast Asia, the objective will be to 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 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.

Member lines have also changed TSA’s formula for other equipment sizes with respect to minimum rates. 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 40ft standard rate for West Coast and $100 over the 40ft rate for all other destinations. The 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.

Speaking about the changes, TSA executive administrator Brian Conrad said: “Carriers feel an urgent need in the current market environment to view pricing differently.

“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. 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.”

The new contract rates will be subject to the addition of a low sulphur fuel cost recovery component, which TSA is currently studying and will likely be announcing over the coming weeks.

“We are studying the various fuel components very closely,” Conrad said. “The stricter 0.1 percent emissions mandate, requiring a shift to costlier marine gas oil (MGO), is of special concern because it will hit the trade all at once and no one can predict just yet where prices will settle. That in turn makes it difficult to adapt our existing formula, but we expect to have a clearer picture closer to January 1, in time to announce a charge with the necessary advance notice.”

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by Laura Stackhouse

readmt.com Editor

Laura Stackhouse is the Web Editor of readmt.com, an official publication of the International Marine Purchasing Association (IMPA). To discuss news, features or contributing to readmt.com please get in touch.

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