Digital Edition

September 3 2018

Issue link:

Contents of this Issue


Page 3 of 71

Mark Szakonyi 4 The Journal of Commerce | September 3 2018 THIS ISN'T WORKING. Higher than usual fuel prices and tit-for-tat tariffs have exacerbated the chaos on the eastbound trans-Pacific this peak season, but the real blame falls at the feet of the container shipping industry. Capacity is so scarce on the eastbound trans-Pacific that US importers from Asia, both large and small, have to pay in some cases $400 to $600 above already high- er-than-usual rates to get space on ships. Thousands of containers are being rolled, as carriers prioritize higher paying spot cargo — more than $3,000 per FEU to the US West Coast and $2,000 to the East Coast — in favor of lower-priced contracted cargo. And some shippers complain that their minimum quantity commitments, or MQCs, aren't being honored. Things aren't much better on the landside. Trans-Pacific reliability is hit- ting as low as 35 percent and, coupled with rail delays and chassis accessibility issues, it's virtually impossible for bene- ficial cargo owners (BCOs) and trucking companies to plan their pickup and delivery schedules with any degree of accuracy. This is the price the industry pays for its inability to reach a level of stability where container lines can make enough money from rates to cover their oper- ating costs, much less turn a profit. In return, BCOs would theoretically receive the level service they need to ensure their store shelves are stocked and man- ufacturing inputs delivered so they don't have to carry unneeded inventory. The seeds of peak-season woes were sown in the spring when carriers entered the contracting season with hopes for meaningful price increases in annual ser vice contracts. Instead they left negotiating tables with contracts run- ning from May 2018 through April 2019 generally in the range of $1,100 to $1,200 per FEU to the West Coast and $2,100 to $2,200 per FEU to the East Coast, a $100 decrease on both routes compared to how contracts ended the year prior. Then bunker prices started to climb in April, with the average price per metric ton of IFO 380 up 19 percent from then and 44 percent higher than in August 2017. The rise in fuel prices caught car- riers unaware, with some working to recoup additional costs not captured through the bunker fuel adjustment via emergency fuel surcharges. With their largest operating cost up even higher, a reluctance to pay even more to speed up ships, and concerns about a tariff impact, carriers reworked their trans-Pacific networks, resulting in a reduction of capacity to the West Coast by close to 7 percent and 1.6 percent to East Coast. At the same time, US importers con- cerned about the next round of potential tariffs began rushing their peak-season shipments earlier only to meet the reality of having fewer slots available. Carriers' sympathy of their plight goes so far. Carriers' frustration with how contracting ended lingered, and they are still eating higher bunker fuel prices, which, coupled with lower than usual rates, pulled several carriers to a loss in the second quarter. Those losses sting even more after the container shipping industry was showing signs of a recovery, having made a profit ($7 billion) in 2017, the first time in six years. "Current capacity and demand are being manipulated by carriers to force price increases they were unable to get commercially," said Mark Laufer, president and CEO of Laufer Group International. Peak season of discontent The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, September 3, 2018, Volume 19, Issue No. 18. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter From the Editor Executive Editor, The Journal of Commerce and JOC Events: Chris Brooks 609 649 2181, Executive Editor, The Journal of Commerce and Mark Szakonyi 202 872 1234, Managing Editor: Barbara Wyker 908 507 4802, Senior Editors: William B. Cassidy Trucking and Domestic Transportation 202 872 1228, Bill Mongelluzzo West Coast 562 428 5999, Hugh Morley Northeast, Mexico 646 679 3475, Eric Johnson Technology 213 444 9326, Janet Nodar Breakbulk and Heavy Li 251 473 2742, Greg Knowler Europe Editor, Maritime & Trade, IHS Markit +44 7976798770, Turloch Mooney Global Ports, Maritime & Trade, IHS Markit +852 9011 9109, Associate Editor: Ari Ashe Southeast Ports, Intermodal Rail 202 548 7895, Web Editor: Joseph Lazzaro 917 309 0148, Data Analyst: Dustin Braden 646 679 3450, Senior Content Editor: Alessandra Gregory Barrett, 860 248 5238 Senior Designer: Sue Abt, 862 371 3534, Designer: Bryan Boyd, 908 910 7849, Publisher: Tony Stein, 770 295 8809, Sales: Cindy Cronin, Strategic Account Manager Southeast, Gulf, Canada sales, 954 551 8305 Zachary Gorman, Account Executive Northeast, Illinois sales 646 679 3466 Jean Gibbons, Senior Sales Executive West Coast, Midwest sales, 706 469 7160 Ria Van den Bogaert, Sales Representative Europe, Middle East sales, +32 2 569 8905 Alex Remstein, Associate Sales Specialist Reprints/Classifieds/Copyrights, 646 679 3418 For Magazine Subscription Customer Service: 450 West 33rd St., 5th Floor, New York, N.Y. 10001 973 776 8660 • 800 952 3839 Executive Director, Editorial Content, Maritime & Trade, IHS Markit, Peter Tirschwell Executive Director, Media & Events, Maritime & Trade, IHS Markit, Amy Middlebrook Manager, Production, Carmen Verenna Product Manager, JOC, Jesse Case ©2018 The Journal of Commerce — All Rights Reserved For more information, visit our website, The Journal of Commerce Continued on page 6 This is the price the industry pays for its inability to reach a level of stability.

Articles in this issue

Links on this page

Archives of this issue

view archives of Digital Edition - September 3 2018