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Apr.4,2016

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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."

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