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Feb.6, 2017

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4 THE JOURNAL OF COMMERCE Editor's Letter Mark Szakonyi THE SPOT RATE is a psychological element for ca rriers a nd ship- pers engaged in the early stages of trans-Pacific service contract negotiations. Yes, it can serve as a base for negotiations, and rates are factored into mechanisms giv- ing benefi cial cargo owners relief when they fall well below a con- tracted rate. But major BCOs know their volume generally affords them lower contract rates than those offered day-to-day. That makes spot rates more of a barometer for how trans-Pacifi c ser- vice contract negotiations could fare, rather than a driving force. More specifi cally, spot rates in the coming weeks will signal how much disci- pline carriers have when there's less volume around because of the closing of Asian factories for Lunar New Year celebrations, which began on Jan. 28. That's when the temptation to chase share with unsustainable rates fl ares. "If liners can maintain these gains beyond Chinese New Year, they will be in a stronger position for the annual trans-Pacifi c contract discussions in the spring," according to a Morgan Stanley research report issued on Dec. 23. A s t his issue's Cover Stor y details, strength of eastbound trans- Pacific spot rates has emboldened carriers to push for higher 2016-2017 contract rates, in the range of $1,600 to $1,800 per 40-foot-equivalent unit to the West Coast and about $2,450 per FEU to the East Coast. Major BCOs signed contracts last season for as little as $750 per FEU to the West Coast. Bruised from billions of dol- lars in 2016 losses and still stinging from the prior trans-Pacifi c contract season, carriers are asking shippers for rates $100 to $300 higher than what was being shopped around just weeks ago. "I don't put a lot of stock in liners' early proposals; this is the game they play," a major furniture importer told The Journal of Commerce. "They will get more realistic about rates" after the TPM Conference in late February, the JOC's annual event that marks the traditional beginning of trans-Pacifi c service contract negotiations. Even so, the importer of Chinese goods to the US and Canadian west coast said he'll be watching the spot rates when two weeks of reduced production, or none at all, ripple through Asia until mid-February. In the week prior to the start of Lunar New Year celebrations, eastbound trans-Pacific spot rates had stabi- lized above $2,200 to move an FEU from China to the US West Coast, and nearly $3,600 per FEU to the US East Coast, according to a Jan. 20 reading of the Shanghai Container- ized Freight Index. Rates to the East Coast and West Coast are up more than 50 percent from last year. The question isn't whether spot rates will fall through February, but by how much. Signs are emerging of just how severe a decline the indus- try expects. Mediterranean Shipping Co.'s general rate increase planned for Feb. 1 would put the West Coast rate about $100 lower and $50 less for the East Coast rate than the Jan. 20 readings for both routes. Only after the Chinese New Year shakes out will BCOs get a true reading of spot rate strength, and get a clue whether carriers' discipline will translate to the service contract bargaining table. Happy spot rate spotting. JOC Will Carriers Hold the Line? The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, February 6, 2017, Volume 18, Issue No. 3. The Journal of Commerce is published bi-weekly except the last week in December (printed 26 times per year) by JOC Group Inc. 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105. Subscription price: $595 a year. Periodicals postage paid at Newark, N.J., and additional mailing offi ces. © 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, 2 Penn Plaza East, Floor 12, Newark, N.J. 07105-2257. FEBRUARY 6.2017 EXECUTIVE EDITOR, THE JOURNAL OF COMMERCE AND JOC EVENTS Chris Brooks 973 776 7818 MANAGING EDITOR Barbara Wyker 973 776 7817 EXECUTIVE EDITOR, JOC.COM Mark Szakonyi 202 872 1234 SENIOR EDITORS Joseph Bonney, Breakbulk/Project Cargo, Gulf Coast 973 508 2417 William B. Cassidy, Trucking and Domestic Transportation 202 872 1228 Bill Mongelluzzo, West Coast 562 428 5999 Hugh Morley, Northeast, Mexico 973 776 7811 Greg Knowler, Asia Editor, IHS Maritime & Trade +852 3975 2647 Turloch Mooney, Global Ports, IHS Maritime & Trade +852 9011 9109 ASSOCIATE EDITOR Reynolds Hutchins, Intermodal, Government/Regulation, Southeast Ports 202 572 1487 RESEARCH EDITOR Marsha Salisbury 973 776 7828 ASSISTANT WEB EDITOR Dustin Braden 973 776 8652 SENIOR ECONOMIST, IHS MARITIME & TRADE Mario O. Moreno 973 776 7850 SENIOR CONTENT EDITOR Alessandra Gregory Barrett 860 248 5238 SENIOR DESIGNER Sue Abt, 973 776 7825 DESIGNER Bryan Boyd, 973 776 7827 PUBLISHER Tony Stein 770 295 8809, SALES Cindy Cronin, Strategic Account Manager Southeast, Gulf, Canada sales, 954 551 8305 Zachary Gorman, Account Executive Northeast sales, Classifi eds/Reprints/Copyrights 973 776 7820 Misty Belser, Senior Sales Executive 919 869 7404 Ria Van den Bogaert, Sales Representative Europe, Middle East sales, +32 2 569 8905 For Magazine Subscription Customer Service: 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105 973 776 8660 • 800 952 3839 MANAGING DIRECTOR, MEDIA AND EVENTS, IHS MARITIME & TRADE, Rhiannon James SENIOR DIRECTOR, CONTENT, IHS MARITIME & TRADE, Peter Tirschwell DIRECTOR, JOC AND RAILRESOURCE, IHS MARITIME & TRADE, Amy Middlebrook MANAGER, PRODUCTION, Carmen Verenna MARKETING PROGRAMS MANAGER, PIERS AND JOC, Jesse Case ©2017 The Journal of Commerce — All Rights Reserved For more information, visit our website, "If liners can maintain these gains beyond Chinese New Year, they will be in a stronger position."

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