Rate hike forecast on US trade lane

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

28 Sep 2007

Vessel capacity and shipper demand in the eastbound Pacific will be in equilibrium in 2008, leading to rate increases in the largest US trade lane, according to a senior APL executive. "It's not a question of if rates go up. The question is how much," said Robert Sappio, APL senior vice-president of the transpacific trade. The coming year will bring together a complex and unique set of circumstances in the US import trade from Asia. Sappio projected an eight percent increase in cargo volume in 2008, which would put supply and demand in relative balance. Effective capacity, or the real carrying capacity of all vessels in the trade, will increase about 10 percent, said Jim Lam, container shipping analyst at Morgan Stanley in Hong Kong. Lam did not project demand in 2008, but noted that the same conditions that exist this year - a weak U.S. housing market and declining imports of key commodities such as furniture - will continue. That could create some excess capacity, but nevertheless rates will trend upward, Lam said. Effective capacity in the transpacific will be reduced by a number of factors, Sappio said. Congestion at US and Asian ports and intermodal rail congestion in the United States will reduce the effective capacity of vessel operators. Limits on traffic transiting the Panama Canal will affect the popular all-water services to the East Coast. Security and environmental requirements will also limit port capacity and efficiency. Expiration of the West Coast long-shore contract on July 1 and possible limitations on factory production in Beijing to reduce pollution ahead of the Olympic Games will force importers to ship earlier, making the first half of 2008 an especially busy time, Sappio said. Rates slumped the past two years not because shippers demanded lower rates but because carriers panicked and offered to reduce rates and absorb increasing fuel costs.