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Lloyds List Comment

Transpacific barometer

By Lloyds List Comment

Friday 1 May 2009

MAY 1 is a key date in container shipping’s annual calendar. That is when the bulk of contracts covering containerised cargo shipped across the Pacific are renewed.

This year will be a little different, since negotiations over-ran in 2008, so that many contracts do not expire for another few weeks.

But the omens are not too promising. Despite assertions from some brave souls that the worst may be over for the container trades, the industry still faces a very long period in the doldrums for the simple reason that ship supply and demand are so wildly out of kilter.

It is against that background that North American shippers will be driving some very hard bargains with their ocean carriers. The US economy is still contracting and powerful cargo interests will give nothing away when fixing transport terms for the coming year.

Furthermore, they know the lines are in desperate straits, as is clear from the shenanigans in the spot market where a rates war has been raging even as those same carriers issue calls for restraint and a return to sensible pricing.

So these next few weeks will be absolutely crucial for the outcome of the entire industry, since the world’s biggest lines will be locking themselves into rates that will be valid for the coming year.

If they cave in and agree to hefty discounts, operators will be stuck regardless of whether some miracle occurs and volumes begin to pick up.

In other words, even if early signs of recovery are spotted, this will bring little immediately relief to carriers if they have committed themselves to very cheap rates for the next 12 months on the world’s biggest trade lane.

While it reasonable for business leaders to point to the positives, some of the signs which could signal that the liner trades are bottoming out, such as higher utilisations, may also be misleading, and just reflect less capacity as so many ships are anchored.

Only when the results of the Pacific contracting season are known, will it be possible to tell whether the container trades really have bottomed out.

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