Ocean lines likely to trim capacity after slack season

Shipping lines are reducing their capacity in the trans-Pacific trade by about 15 percent during the slack season, but don’t expect the carriers to put all of that capacity back into service next spring.

The slump in imports from Asia that took place this year is likely to be repeated in 2009, and round-trip freight rates in the eastbound Pacific are non-compensatory, so carriers have no incentive to increase capacity next year.

Containerized imports from Asia have fallen about 7 percent in 2008 on-year due to the weak United States economy, the collapse of the housing sector and the deepening credit crisis. Economists believe conditions could remain bleak in 2009.

As in past years, carriers are reducing capacity for the traditionally slow winter season.

While capacity cuts are normal this time of year, carriers in the past always returned the ships to service the following spring when cargo volumes began to pick up. Carriers often increased capacity further with the approach of the autumn peak shipping season.

Next year, however, could be another slow year, especially if the housing sector does not rebound, because 25 percent or more of what shipping lines carry from Asia is in some way related to housing.

In addition to managing capacity, carriers must also reduce their operational costs. Carriers are analyzing their increased costs in the all-water services from Asia to the East Coast, and they do not like what they see.

Fuel costs, now about $500 per metric ton, on all-water services to the East Coast are about $1,363 per-40-foot container, compared to $861 on services from Asia to LA-Long Beach with 8,000-TEU vessels.

Costs are also increasing on West Coast services, however. Railroads the past two years have increased their intermodal rail rates at least 30 percent and diesel fuel charges for rail and trucking services have also increased dramatically.

Carriers in the coming year will attempt to reduce their operational costs by matching capacity with demand, returning chartered vessels to their owners and slowing down the speed of vessels in order to conserve fuel.

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