With major shipping lines sinking in a sea of red ink, carriers are attempting to raise rates up $500 per 40-foot container even though retail sales are stuck in negative territory.
For the past year, retailers and apparel importers have had few good-news packages delivered their way. Retail sales are down, credit terms are tough and consumers are cautious about pulling out their credit cards. About the only sliver of good news bouncing around recently has been that cargo shipping rates from Asia to the United States have been down about 50 percent from last year. But that could change if shipping companies succeed in boosting rates on eastbound container ships by 57 percent for a 40-foot container.
During the first part of this year, the spot rate to send a 40-foot container on a vessel sailing from China to Los Angeles was as low as $800. Even up until the last week of July, the Hong Kong?Los Angeles container rate was $871 per 40-foot container, or 58 percent lower than one year ago.
But with major shipping lines sinking in a sea of red ink, carriers are attempting to raise rates up $500 per 40-foot container even though retail sales are stuck in negative territory. ?It is clear that, financially, the shipping lines are in a situation where [rates] are not sustainable,? said Paul Bingham, an economist at IHS Global Insight, where he is managing director of world trade and transportation markets. ?They can"t continue to incur the losses they have had in the first two quarters of this year and stay in business.? The shipping industry has been as hard hit as the apparel industry during this economic downturn. During the first quarter of this year, the 14 shipping lines that serve the trans-Pacific route between Asia and the United States saw a 20 percent drop in year-over-year volume. At the beginning of June, 520 cargo container vessels, or 10 percent of the world fleet, were idled, many of them moored off the coast of Singapore.
?The market fell off a cliff,? said Niels Erich, a spokesperson for the Transpacific Stabilization Agreement in Oakland, Calif., whose 14 cargo carrier members make rate recommendations. With so much capacity early this year, ocean liners started offering bargain-basement rates to shippers during the traditionally slow shipping season. These cheap rates stuck even into contract-negotiation time. Normally, shippers firm up their freight rates in contracts that begin May 1. This year, carriers dragged their feet and didn"t sign contracts until July 1, hedging that spot rates would go up. But they didn"t.