Shedding Some Light on Current State of Transpacific Shipping

Editor’s Note: Supply chain and global logistics managers faced with finding space during the peak crush season may find some relief from 2M Alliance members Maersk Line and Mediterranean Shipping Company (MSC). Both carriers announced last week that they are launching new weekly services in the transpacific.

Brian Conrad, executive administrator for the Transpacific Stabilization Agreement (TSA) share some related views in this exclusive interview with Logistics Management—a sister publication.

Logistics Management: Will TSA members be introducing new capacity in the wake of the Hanjin crisis?

Brian Conrad: Recent press reports have suggested that some individual lines have deployed extra loaders in the Asia-US trade to assist shippers with cargo stranded in Asian ports. However, it should be emphasized that TSA neither discusses, nor takes group actions relating to capacity.

LM: Should shippers expect rate increases?

Conrad: Eastbound trans-Pacific rates have begun to rise in recent weeks due to a range of factors, and it's important to place the overall trend in proper context. First, rates had fallen by as much as 25% during the first half of 2016, a result of stalled consumer demand and business spending; sustained high inventory levels; and new vessel capacity being cascaded into the market. Brightening prospects for the peak season encouraged carriers to hold the line on GRIs which were filed at the end of June and July- prior to developments with Hanjin- to take effect August 1 and September 1.

LM: Anything else our readers should be aware of?

Conrad: Of course any sudden cessation of operations- even if only temporary- by a carrier with significant market share is going to create a surge in demand for space. Accordingly, there will be a need to ramp up existing services quickly at additional cost to meet that demand as the peak season progresses.

LM: Will carriers have more leverage in future contract negotiations as a consequence of the Hanjin bankruptcy?

Conrad: That will be for the market to decide, and is impossible to predict at this point.

LM: Should shippers brace for more carrier consolidation in the transpacific?

Conrad: It's unclear at this point the extent to which alliance memberships are solidified and how many more paths remain for new mergers. The more crucial question for the trade involves further cost-cutting going forward, in the form of blanked sailings, canceled ports and routes, service strings eliminated, terminals rationalized, and so on. Few options remain after those are exhausted, given only six profitable quarters in six years and revenues at current levels.

LM: What are TSA members doing to offer long-term sustainable service?

Conrad: Container lines are doing what any business would do in a comparable environment: Adapting to short-term conditions by managing cost and right-sizing operations and service offerings; focusing on service quality within a smaller footprint; seeking out opportunities for niche segment growth and service differentiation; and positioning themselves to move quickly when the market returns.

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