Posted by David Ige on Fri, Jul 16, 2010 @ 02:25 PM
Despite this year’s huge volumes and ridiculous increases in rates for container shipping lines, a better indication of the “recovery” will begin to be apparent by late August early September when most of the backlog that has plagued the China to U.S. market is out of the way. One good indicator of this is the recent dramatic drop in freight volume from the U.S. back to China in raw materials like Lumber and Scrap Metal. This is due to the fact many Manufacturing Companies in China are not getting new orders past Aug-Sep, so they don’t need any more raw materials from the U.S.
Meanwhile all of the Carriers are “Getting it while the getting’s good.” Can you believe another $400-$600/40 increase set for August 1 for the Pacific Rim eastbound trade ? My advice to anyone listening is to hold off your shipping till maybe Sept –Oct when rates will probably drop and space problems be alleviated, and I am a Shipping Company !
I personally do not see a dramatic slowdown, because we are in PEAK SEASON after all, which traditionally lasts until around Oct-Nov when Christmas orders are all in. This year witnessed an intense backlog in China that was due to many factors such as China’s continuing problem of a shortage of skilled labor coupled with rising labor costs, factories no longer getting government subsidies which have resulted in mass shutdowns and relocations to central China, shortages of equipment and of course the manipulated vessel space shortage created last year by all of the Carriers. We can sit back and marvel at how well this strategy worked for the Carriers as all are again profitable by now rising back from the precipice of near disaster and bankruptcy last year. Economists and Economy majors in Universities will be studying this for years to come.
However this was not a true indicator of a real recovery in the U.S. Economy nor was it for the Shipping Industry (Although most Freight Companies are relieved to see their profits up this year from last year’s dismal dance with an actual economical depression ) If the U.S. Economy doesn’t have a true recovery that is sustainable we are in for a slide in the 2nd half of the year. But have no fear, the freight rates will probably be propped up to no more than a 20% drop by you guessed it…more vessel’s parked in Singapore as well as the newest method of Carrier cost saving….”Slow Steaming.” Most Carriers have learned from their mistakes and have figured out how to stay profitable in a down market. But hey, isn’t what is supposed to happen? What doesn’t kill you makes you stronger.
The old days of the big volume Importer “ VIP account “ appear to be over, as everybody including Walmart had to “pay the piper” this year and will continue to do so. I have no problem with that personally as it was getting embarrassing to see the “Big Dogs” make every carrier their female canine for so long.
But that doesn’t mean there won’t be repercussions. I am sure in the coming months as Carriers start to come begging for more freight, they will find they have lost some loyal customers….either that or with high freight rates and the inevitable re evaluation of the Chinese RMB, some importers may end up becoming exporters one day…WHICH IS A GOOD THING.
Devin T. Burke
CEO, Universal Cargo Management
Posted by David Ige on Fri, Jun 25, 2010 @ 01:04 PM
If you are an importer from Asia into the U.S. you are tearing your hair out trying to figure out how to afford the dramatic increases in freight rates, coupled with the tremendous space problems occurring in every port throughout Asia, especially China. Freight rates have increased an average of 350% since this time last year if you ship from China to the U.S. West Coast ports.
If you are a student of the events leading up to the present day situation, you will remember it began around last August when the financially drained Ocean Freight Carriers decided to band together and stop the bleeding by parking most of their older, smaller vessels right off the coast of Singapore to create a limitation on capacity, with every intention of raising freight rates immediately. This is exactly what happened in September last year, first with the Freight Forwarders who are the bastard children the Carriers love to kick around, while protecting the ridiculously low rated contracts all of the BCO's held, from a guy that ships 50 Feus a year on up to Walmart. What happened was the inevitable, the BCO's started having a hard time getting space because they were still paying $750/40 from China to the West Coast, while the Forwarders got more space while paying $1,000-$1250/40 on through the end of the year. Then came the first boom being lowered on Jan 15, everybody, including Walmart, had to pay an average of $800 increase immediately or they wouldn't get on board. Since Chinese New Year was coming up, the Carriers timed it perfect and got away with it. But then it became like Crack, and the Carriers were hooked, so another increase came in March, right after CNY, which has never happened, nobody is shipping, China factories are just getting back from 2-3 weeks of playing Mahjong. However guess what, everybody was shipping, due to delays of production from before CNY, cargo not shipped due to space problems, increases in orders in the U.S. due to lack of inventory, and we were off to the races and haven't looked back.
Yes now since May 1, which is always the traditional GRI (General Rate Increase) As all service contracts are renewed between the Carriers and the Shippers, June 15 which was the traditional PSS (Peak Season Surcharge) we are indeed looking at rates from China to the U.S. West coast around $3,000/40 and climbing.
I haven't seen it this high since that brief period during the Longshoreman's Dock strike in the West Coast in Oct and Nov of '02.
And before that in the beginning of '85 before rates plummeted by year's end. Last Summer an importer paid about $2500-3000/40 to ship to interior regions to the door, $2000-$2500/40 to the East Coast cities to the door. Now the rates are over $5,000/40 to interior regions door, and around $4500/40 average to East Coast cities door . Right now coming into July 4th, with the season just kicking in to full swing, which usually lasts through September in a bad year, and through November in a good year, we are still experiencing space constraints, although now that most Carriers are bringing in new vessels, and there has been some softening of space constraints, everything is being tightly monitored and if you don't pay you don't ship. This is the market the Carriers have always dreamed for.
It's payback from '08 and '09 where last year the average carrier lost half a billion, with Maersk reportedly losing $2b, wow !.
So where do we go from here?
Well we have the FMC doing their fact finding investigation looking into vessel capacity, container availability,( unfair practices by the carriers , collusion?) You would think possibly, however when the report due July 31 comes out, don't hold your breath.
Senators Blanche Lincoln of the Senate Agriculture Committee and ranking member Saxby Chambliss have stated regarding the problem of service contract holders not having their contracts honored "These contracts are supposed to ensure that the carriers will provide the necessary weekly equipment and vessel space and the rate will be fixed, unfortunately it has come to our attention that carriers are now routinely failing to honor these contracts."
The two Senators asked the FMC to provide information on what authorities it may have or should have to ensure that these contracts are honored. "Including the ability to penalize carriers for egregious practices." Wow, let's see if the current mood of Washington which is that of punishing any Company that dares to make a profit carriers over to this issue. We shall see.
In the meantime MSC, MAERSK and CMA/CGM, the three largest ocean Carriers in the world have teamed up to jointly operate a transpacific loop starting July 10th. The service called EAGLE by MSC and YANG TSE by CMA will cover just Shanghai, Xiamen, Qingdao, Hong Kong, Kaohsiung with Long Beach.
This will help alleviate a lot of pressure in this very busy loop in the Pacific Rim.
Devin T. Burke, CEO
Universal Cargo Management, Inc.
www.universalcargo.com
Posted by Mark McAlister on Fri, Jun 04, 2010 @ 05:24 PM
- U.S. and China Continue to Arm Wrestle
Recently U.S. govt and Chinese govt officials met for the Strategic and Economic Dialogue (S&ED) talks for another round with the indigenous innovation issues.This involves China’s desire to develop and export more “High end” technology and compete with the U.S. WHERE WE RULE and will hopefully continue if our education system ever gets back on track, but I digress. While China's government continues to drag their feet in making it harder for copycats to steal our technologies. However score this round to the U.S. for not only getting China to be more flexible about this issue, but they are now willing to “rewrite” the contract for being in the WTO when they all sit down next month.
The other issue would be on what exactly does China plan to do with their currency evaluation?
If you are in the business if import or international shipping you are most likely crossing your fingers and telling the Obama administration to “shut the hell up”, or if you are an exporter, or a U.S. manufacturer you are screaming at the top of your lungs “ADJUST THE YUAN EXCHANGE RATE to reflect the Market” so America can rebuild it’s competitiveness on the World market for it’s goods and services. Either way, it appears as China is not only becoming a consumer market on the world’s stage, but also slowly moving towards a higher end technology (like what happened to Japan in the ‘80’s and Taiwan in the ‘90’s) they realize that it is inevitable that the RMB strengthens another 10-15% in the coming year. China is just biding their time, while the U.S. keeps nudging them along. So America, it’s time to get your thinking cap on and get back to the workshop and innovate. (That and maybe buy a few RMB along the way maybe)