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Mid
January |
Dear Customers and Friends of Seajet!
This time it has not been long since I
last wrote to you about the implementation of the EBS and some of the
background leading up to it. Most of you know that COSCO is the only carrier with direct service into Boston from three main ports in China; Shanghai, Yantian and Hong Kong. They accept freight at various other ports from where they feeder containers to one of the three ports from where they go via the Panama Canal directly into Boston (New York, Boston, Charleston). Seajet has started supporting this service with your cargo from its inception with the maiden voyage of the Zhen He which arrived Boston on May 21, 2002. This service has become popular due to its competitive pricing and predictable/reliable transit time of 26-27-29 days (Yantian/Hong Kong/Shanghai). Other carriers have slot charter agreements with COSCO and these carriers are: YML, Hanjin and K-Line. However, they of course have much smaller container allocations on each vessel. We do have contracts with YML (25,000 TEUs) and K-Line (1,000 TEUs) as well. I have recently spoken to our main office dealing with COSCO headquarters in Shanghai and was informed that COSCO along with all the other carriers will as well reduce space drastically on its direct Boston service (AWE2). Below hereto is their new schedule: Rotation for AWE2: Shanghai-Hong Kong-Yantian-New York- Boston-Charleston Week 3 Vessel Panama Capacity (TEUs) 2700 Week 4 Vessel Zhen He Capacity (TEUs) 4200 Week 5 Vessel HS Bizet Capacity (TEUs) 3500 Week 6 Vessel Yuan He Capacity (TEUs) 4200 Week 7 Vessel Sydney Capacity (TEUs) 2700
All carriers are following the same example. The idea clearly is to limit space to such a degree in the trans-pacific trade as to create the perfect climate for carriers to face the re-negotiations of service contracts effective May 1. As explained in my previous email (if you don't have it anymore you can go to our web site at www.seajet.com - Select the "NEWS" tab, click on Archive and go to January 2008 - EBS Notice) the trans-pacific trades have been highly unprofitable and carriers have decided to take drastic measures to ensure a better outlook for them in 2008. This we now see executed in the way carriers are reducing lift capacity. What does all this mean for your import season in 2008/2009? I am not suggesting that I can see into the future (nor would I like to) but I am prepared to share some of my thoughts with you. Imports into Boston on COSCO AWE2: Contrary to last year I expect that this year containers will be rolled again or simply not accepted if booked too late especially for the much smaller vessels. The COSCO AWE2 service was popular and the old ships were well utilized. A 2200 TEU/13% reduction will be felt. Similar roll-overs occurred in 2004 for all AWS services due to some labor unrest on the west coast but mainly due to the inability of the railroads to move containers from the ports of Los Angeles/Long Beach to mid-west and east coast locations. As a result containers started to pile up and vessels were sitting at sea for up to two weeks before they were unloaded at port. In an attempt to avert such delays shippers and forwarders switched over to AWS which were not able to absorb the additional capacity from the west coast and thus received more bookings than they could ship. Hence, bookings for AWS containers were either not accepted or rolled to the following vessel. This year there is no labor unrest and there are no problems with the railroads at Los Angeles/Long Beach creating more demand for AWS than is available. This year the carriers created this situation by reducing the space artificially and by design. What can you do? For the remainder of the year you may be able to set up your exports ahead of the originally planned times. For example, allow an extra week or two in your transit time forecasts. Ask your suppliers to book as early as possible. In theory the carrier can require a booking 2 weeks prior to the intended shipping date. When there is no shortage in space this is a non issue. However I obviously predict shortages so the earlier your suppliers book their containers the better the chance to get a booking. Effective the new contract period starting May 1, 2008 it is safe to expect higher rates. This is what this is all about. If you can, try to reflect this in your pricing. What will Seajet do? We have contracts with 17 carriers in which we have contracted for over 200,000 containers during this contracting period. This means that we will have many options to move your freight on other carriers (YML or K-Line through slot charter on COSCO, MLB or AWS via trans-load in New York) into Boston or Worcester. The rates will be higher than the ones you have become accustomed to from the COSCO service but they will allow us to move your freight when it is ready. However since all carriers have reduced their capacity the options may change from week to week. We will continue to book your Boston freight on COSCO and if we fail to secure a booking at the time we receive the booking from your supplier, we shall give you the alternatives including a cost comparison. Imports into other ports/cities than Boston: I expect to see ships booking up quickly as well and as a result we might be forced to make changes to the carriers we would typically chose for a particular route. If this means a change of price we will contact you with the alternatives for you to decide. In summary: Over the last 10 - 15 years the US trade from China has seen dramatic growth each year which only became more intense with China's full blown entry in the late 90s's. Year to year increases of 10 - 15% were almost a given and any global carrier had to join the bonanza. This all stopped in 2007 when the U.S. economic problems suddenly halted this growth which came in at about 1-2% depending on who you ask. The carriers were caught off guard which resulted in catastrophic performances in the Far East - US trade lanes. In the past, carriers had little choice but to wait out such times of sudden halts to growth. They had to take possession of ships as ordered per their forecasts and had to pay the notes on them accordingly. This time Europe came to the rescue. The Chinese RMB devaluated together with the US$ against the EURO and other European and world currencies which all of a sudden made China the one country to buy from in Europe. Accordingly carriers could easily re-deploy ships from the American trade lanes in the European trade lanes. This was a safe bet because the sudden and drastic increase in orders from Europe posed no danger to the rate structures in these markets. Even after additional capacity was introduced into the European trade lanes, the demand for space was still so high that carriers were able to raise prices on numerous occasions over the past year. With everything I know I do not see anything that would suggest that things will change this year. We all like to forget things that do not go our way. However, there have been plenty of problems, shortages of space, sudden rate hikes and ups and downs over the past 10 years. Remember the 2002 west coast labor shut out? The 2004 railroad mess in Los Angeles/Long Beach? How about the sudden rate hike in 2003 where rates went from an average $ 3,800/40' (in 2002) from Hong Kong to Boston to $ 4,800.0/40'? Over the last 10 years, rates have been at a low in 1998 at around $ 3,200.00/40' Hong Kong/Boston and at an all time high in 2003 when they peaked for a short time at $ 4,800.00/40'. My point is that ocean carriers and their rates depend on trends which change and are typically part of a cycle. I have no idea at this point where rates will be on May 1, 2008. However, if they are too high, carriers will be quick to re-deploy their vessels in the trans-pacific trades which will lead to greater capacity and as a result in lower rates. If we know anything, it is that nothing remains the same. And, as mentioned above, I cannot look into the future, so the above may never come to play. Just don't bet on it. Our pledge is always the same. As in the past 20 years will do everything in our power to keep your freight moving in 2008 at the best prices possible. As always we thank you for your support and I will be happy to answer any questions that you may have. Best regards, Andreas Andreas
Bauermeister,
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Seajet Express Inc., 46 Arlington Street, Chelsea, MA 02150 - Telephone 617.884.0991 - www.seajet.com |
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