LA/Long Beach box traffic slumps

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By Janet Porter and Marcus Hand - Wednesday 18 March 2009

 

CONTAINER traffic handled by the southern Californian ports of Los Angeles and Long Beach collapsed last month as the Chinese New Year slowdown coincided with rapidly eroding consumer demand.
Throughput at Los Angeles dropped by 33% compared with February 2008, while Long Beach handled 40% fewer containers last month.
The sharp declines came as no surprise, with both ports braced for appalling numbers.
Plenty of anecdotal evidence about the extent of the slump had preceded publication of the latest trade data.
Transpacific carriers are now in the fight of their lives to prevent deteriorating spot freight rates that have accompanied the cargo decline from becoming the benchmark for annual service contracts that are now being negotiated. That would put the survival of some at risk.
Members of the Transpacific Stabilization Agreement issued a notice on Wednesday telling shippers that they will be seeking rates of about $500-$600 per 40 ft box higher than current spot rates for 2009-2010 contracts, in an effort to avoid a “catastrophic event”.
TSA chairman Ron Widdows has already acknowledged that contract rates for the coming year will be lower than those obtained in 2008-2009 after a drop in spot rates at the start of the year.
Figures published by Drewry last month showed that spot ocean rates from Hong Kong to Los Angeles were down by almost a third year on year. These rates only cover a small percentage of cargo, but will be cited by shippers as they renew service contracts.
But TSA lines agreed at their meeting in Tokyo last week to do all in their power to stop spot levels becoming the standard for annual contracts that would lock lines in to those levels for 12 months.
This latest initiative comes as Los Angeles reported a 35% decline in loaded inbound containers in February to 205,000 teu, while Long Beach saw imported containers plummet 43% to 149,000 teu.
The steep drop not only reflected economic weakness in both the US and Asia, but also the timing of the Chinese New Year holidays. Cargo also has shifted to smaller ships, while the two ports face competition from others along both the Pacific and Atlantic coasts.
The number of services has declined, with AXS-Alphaliner estimating that average weekly transpacific capacity has fallen 13% since last October. The firm puts the number of liner services from Asia to North America at 60, compared with 70 five months ago.
Against this dire backdrop, TSA members have unveiled a two-stage recovery plan. 
Firstly, each will try to terminate cut-price short term or spot rates by the end of June.
Secondly, TSA members will try to establish rates in new contracts at $500-$600 per feu above current spot levels. They also aim to add in full floating bunker surcharges and inland transportation recovery provisions.
The sharp decline in spot rates ahead of this year’s contracting season, with most coming up for renewal on May 1, has enabled shippers to obtain some early bargains.
“There have been isolated incidents where these non-compensatory rate levels have found their way into a small number of new contracts,” said Mr Widdows, who is also chief executive of Neptune Orient Lines.
“Everyone involved in this trade faces the certainty of significant losses if quick action is not taken to approach the upcoming round of contract negotiations with a renewed focus on rates that will support continued servicing of this market.”
Efforts in recent months by the TSA to halt the plunge in box rates have proved to be futile as lines have battled to retain market share in a rapidly shrinking market.
“In spite of TSA members’ earlier announced intention to expire these unsustainable rates, carrier behaviour not only failed to arrest the volatility in the trade, but contributed to further erosion in a number of cargo segments, most significantly in the spot market,” Mr Widdows said.
TSA executive administrator Brian Conrad said carriers would see rates soften from 2008-2009 levels, but warned of a potential “catastrophic event” unless current spot rates were reversed.
“The carriers have reached a point where financial survival, not utilisation or market share, has to become the driving force,” he said.