Transpacific lines adopt refrigerated trade management program for 2002

With no end in sight to the steadily declining market for refrigerated exports, and with plunging freight rates from the U.S to Asia, major shipping lines have adopted a program to help stabilize the trade and avoid potential negative impacts to service levels.

Member container lines in the Westbound Transpacific Stabilization Agreement (WTSA) note that during the past year, the overall westbound refrigerated cargo market has shrunk by nearly 7% -some 31,000 TEU and that refrigerated freight rates have fallen 15% from already depressed levels. The resulting revenue losses threaten the lines?ability to maintain state ?of-the-art equipment and service levels.

In response, WTSA carriers have announced a one-year Refrigerated Trade Management Program that:

-Designates a market share percentage to each WTSA carrier based on historic liftings;
-Allows a 0.5% market share cushion to each carrier to meet unexpected customer needs; and
-Provides that carriers exceeding their allocations will pay compensation to carriers unable to meet their assigned shares.

The program covers all refrigerated shipments in the WTSA trade except Indian Subcontinent, Alaska and military cargo. It will have an initial duration of one year. Liftings will be reviewed on a quarterly basis and applicable charges will be paid at the end of the one-year period.

Carriers say some kind of trade management is needed given extensive carrier investment in refrigerated equipment and service, and the dramatic slowing in Asian demand for refrigerated cargoes during the current economic downturn.

Depressed volumes and rates have placed serious cost pressures on carriers. For example, a typical refrigerated container/ generator set costs $35-50 in today?s market. Special terminal monitoring and loading costs alone can run from $160 -310 per container, and carriers incur additional expense in pre-trip cleaning and preparation; special rail protective costs; monitoring and handling in transit; and additional claims and insurance costs because of the high value of the cargoes involved.

Equipments repositioning costs are especially significant, given the difficulties in scheduling complimentary loads within Asia, from Asia back to the U.S, and within the U.S to and from port locations.

?For much of the refrigerated segment, huge dollar amounts are at stake per container and there is really zero tolerance for error or for cutting corners on service or cost,?explains WTSA executive director Albert Pierce. ?Competition and low rates have helped U.S perishables exporters open new markets and compete with low-cost third country products, but rates have now reached unsustainable levels. We want to ensure confidence in the lines?ability to meet future service commitments.?

Pierce adds that, in recent years, a booming eastbound market and equipment demand from Asia to the U.S has provided somewhat of an economic cushion for carriers to support westbound service. Now, however, eastbound volumes are flat and rates have fallen sharply.

WTSA lines point out that extensive worldwide demand for refrigerated container equipment has intensified competition to secure those assets for customers in multiple trade lanes. Carrier managements, meanwhile, are under growing pressure to deploy expensive refrigerated units in trade lanes offering maximum utilization and earning. While they remain committed to meeting the equipment and service needs of perishables shippers in the Pacific, carriers say revenue stabilization is the key to ensuring a steady, adequate short-term and long-term supply of up-to-date refrigerated equipment in the Pacific.