As this is our first post, we thought it would be mutually beneficial to address what the ocean freight industry has done this past year and what we expect it to do over the next few months.
What we have seen:
During the 2nd half of 2008 through August of 2009, the US and World economies plummeted. The ocean freight industry, in an effort to reduce costs, cut or merged trade lane services and docked more than 500 vessels (see picture below of the “Ghost Fleet” off the coast of Malaysia). Yet even with this reduced capacity there was still not enough demand, so carriers drastically reduced rates to unsustainable amounts.
What carriers quickly realized was that even with pricing below cost there was still no demand. Carriers then took a different approach by drastically raising prices through Rate Restoration Increases, General Rate Increases and even Peak Season Surcharges. Below is a piece from the TSA website (Transpacific Stabilization Agreement, a research and discussion forum between ocean carriers such as APL, CMA, ZIM, OOCL and more):
2009-10 Interim Revenue Improvement
Given the unprecedented market conditions in early 2009, TSA member lines did not announce a customary program of rate and surcharge adjustments for the upcoming contract year, that would form the basis for contract negotiations.
However, upon reviewing the results of negotiations after most contracts had been signed, carriers determined that overall rate levels in the trade going forward - and locked in for 12 months - were unsustainable, and that further revenue improvement was needed.
On July 7, 2009 transpacific container shipping lines announced an interim revenue improvement program for the 2009-10 contract year, including:
- A $500 per 40-foot container (FEU) rate increase for all commodities
and all U.S destinations, to take effect August 10, 2009.
- Full implementation of the quarterly floating bunker fuel charge, to the
July 1 levels of $188 for the West Coast and $385 for the East Coast.
- A possible peak season surcharge in the event the eastbound market
measurably strengthens and extensive peak season costs are incurred.
Prices now are at levels similar to those before the global economic recession. Carriers are sharing vessels and still continuing to lay up ships and delay or even cancel production orders of new ships. Branches are being closed and work consolidated to reduce overhead costs. With only a marginal increase in demand during this year’s peak season, some in the industry are convinced that we will not see enough of a profitable holiday season to pull our economy out of this recession. Some economists forecast the recession to last until 2012.
What we expect to see:
In an unstable economy we can only expect prices to remain unpredictable. Although carriers will not drop their rates back to the phenomenally low rates seen a few months months ago, we expect continued rate fluctuations as carriers try to survive by raising rates while shippers continue to push back.
The market is already beginning to improve, and we expect in the next 6 months the shipping industry will see demand return. Unfortunately, with the service and personnel cuts required to survive the current economy most companies will be ill-equipped to handle the needs of their returning customer base. Customers who were loyal during the recession, namely NVOCC’s and freight forwarders, will likely receive preferred service at the outset but the lack of available personnel will play a significant role in service and end customer satisfaction.
The following is a video of compiled images of oil tankers set to music.
We hope you find it entertaining and interesting.
Video provided on YouTube by ElMejoDeMuja
