INTERNATIONAL MARITIME
IMPORTING | EXPORTING | PORTS | CARRIERS | BREAKBULK | GLOBAL LOGISTICS
www.joc.com THE JOURNAL OF COMMERCE 15
By Bill Mongelluzzo
W I T H 2 0 1 6 - 1 7 T R A N S - PA C I F I C ser v ice
contract negotiations well under way,
beneficial cargo owners and ocean car
-
riers say they face so many uncertainties
that virtually everything in the contract,
from freight rates to chassis usage, is open
to renegotiation.
This fact was borne out by a poll of
about 50 BCOs that The Journal of Com-
merce took in early March. It revealed that
negotiations on freight rates, chassis usage,
cargo routing, intermodal charges and BCO
loyalty to core carriers during a period of
rapid consolidation are taking a different
direction than negotiations for the 2015-16
service contracts.
Underpinning this year's negotiations is
the free fall of freight rates because of over-
capacity in the U.S. containerized trade from
Asia. "Overcapacity is here. Overcapacity
will stay. Overcapacity will remain for the
next 12 to 18 months," said Dean Tracy, man-
aging director of transportation consultant
Global Integrated Solutions.
Carriers are paying a price for the deci-
sion they made several years ago to lower
their operating costs by ordering hundreds
of mega-ships with capacities ranging from
10,000 to more than 18,000 20-foot-equiv-
alent units. Those vessels overwhelmed the
Asia-Europe trades, where they were first
deployed, and with those trades saturated,
carriers last year cascaded some of the big
ships into their trans-Pacific services. The
additional capacity exceeds the growth in
imports from Asia, and is expected to con-
tinue to do so at least into next year.
Spot rates, which by definition float up
or down with supply-demand economics,
plummeted in December to a record low
below $800 per 40-foot container. The spot
rates picked up briefly in January during
the pre-Chinese New Year rush to bring
imports into the country before factories in
Asia closed for the two-week celebration.
The rates then resumed their descent, set-
ting or nearing new lows to the West and
East coasts.
It's in this volatile environment that ser-
vice contract negotiations are taking place,
with the intention being to have the 2016-
IN THE TRANS-PACIFIC,
IT'S ALL ON THE TABLE
With spot rates plummeting and market uncertainty
prevailing, nothing is off limits in contract negotiations
"Overcapacity is here. Overcapacity
will stay. Overcapacity will remain
for the next 12 to 18 months."
