Freight space shortages to Asia continue
Container shipping lines in the Westbound Transpacific
Stabilization Agreement (WTSA) say they are working closely with United
States exporters to address continuing space and equipment shortages
to Asia. But sorting out the complex operational and cost factors behind
those shortages has left both carriers and shippers with difficult challenges.
A weak dollar and robust Asian demand for agricultural products, industrial
raw materials, machinery, and other commodities, led to westbound cargo
growth of nearly 17% in 2007, with a further 12-13% growth forecast over
2008-09. Other factors have also fueled the explosion in containerized
export cargo. For example, earlier this year, commodity demand in Asia
and rising grain prices pushed up bulk vessel charter rates to historic
levels, causing shippers to shift more grain exports from bulk ships
While eastbound traffic grew by less than 1% in 2007, the volume of loaded
containers shipped from Asia was still more than twice that of loaded
container volume for return United States exports. That imbalance means
transpacific carriers must continue to scale their fleets, routing and
schedules for the higher-volume Asia-United States “headhaul” segment,
and the current soft inbound market does not justify adding new capacity,
particularly given record fuel and other fixed operating costs.
Thus, United States exporters and their carriers find themselves squeezed
by factors affecting both directions of the Transpacific trade: A sharp
increase in Asia demand for United States products, driven primarily
by the weak United States dollar, along with a significant falloff in
eastbound volumes as the United States economy has slowed, resulting
in little to no new capacity entering the trade. Furthermore, vessels
and equipment cannot easily be reallocated among trade lanes in a matter
of weeks, given ship sequencing requirements, customer commitments in
affected trades, vessel size and draft restrictions, port and terminal
capabilities, and other considerations. In addition, the Transpacific
routes are competing for assets with trade lanes that are still growing
and offer more attractive economic returns, such as Intra-Asia, Asia/Europe.
This situation is likely to persist until there is an improvement in
the economics of serving the United States trades.
“No one sets out to turn away business, but at this point carriers face
hard choices with each sailing about how best to balance competing customer
demands for limited vessel space and equipment. To say that carriers
are not doing all they can to accommodate the maximum amount of export
cargo their networks will handle is simply inaccurate,” explained WTSA
chairman Ronald D. Widdows, who is also CEO of Singapore-based container
line APL Ltd. “Carriers are doing the best they can to work with their
customers to satisfy their need for space under very difficult circumstances.”
Widdows added that the westbound commodity mix of heavier cargoes – frozen
poultry, metal scrap, forest products, steel or machinery, for example
– reduce a ship’s effective capacity, by reaching the weighted limit
of the ship with fewer containers. Depending on the vessel involved and
the cargo mix, a westbound sailing may load 35-50% fewer containers due
to added weight. He acknowledged that, for the first time in over a decade,
some United States exporters to Asia have experienced difficulty getting
container equipment delivered to their premises for loading after having
made a booking. The dramatic change in trade flows caught many shippers
and carriers unprepared, Widdows said, necessitating some adjustment
in cargo flow and equipment repositioning patterns within the United
Getting equipment to rural Midwest and Plains state grain exporters proved
both difficult and costly, as inland rail and truck rates have increased
on the order of 25-35%. Shipments of scrap metal and wastepaper, which
has represented more than a quarter of the total export container market,
have also surged, creating competition for vessel space with the higher
demand for agricultural products and manufactured goods.
As vessel space has become suddenly scarce, some shippers have compounded
the problem with multiple bookings in an effort to assure equipment availability.
“On the one hand, WTSA lines report customers on the phone with shipments
ready to go, desperate for containers and space,” Widdows explained.
“On the other, they have phantom bookings with container and space reserved
and cargo that never materializes.” This adds significantly to carriers’
challenges in matching vessel space and equipment with available loads.
Most carriers’ westbound sailings are now fully booked six to eight weeks
in advance, he added.
A final complication is that the westbound and eastbound trade lanes
are reverse images of one another in terms of commodity and service characteristics.
Eastbound equipment is typically unloaded at inland retail distribution
centers that are nowhere near key agricultural and industrial load points
for export traffic. Conversely, delivery points for United States produce,
scrap metal, animal hides, chemicals and similar export shipments to
Asia are often far from the Asian contract manufacturers of apparel,
consumer electronics or toys awaiting that container for loading. The
current surge in exports magnifies the logistical strains caused by these
differences in the inbound and outbound trades.