Posted on 07/08/2009 5:03:26 PM PDT by Vince Ferrer
One could be forgiven for thinking that contracts in shipping are no longer worth the paper they are written on.
First we had charterers in the dry bulk sector simply walking away from unfavourable contracts at the top of the market. Now in container shipping we have lines on the transpacific trade trying to unilaterally increase rates on annual contracts just months after they were agreed.
It would certainly be interesting to be a fly on the wall when shipping line sales people meet major US shippers and try to explain that they now, in effect, want to tear up contracts they have spent months negotiating.
The position of the members of the Transpacific Stabilization Agreement is that 2009/2010 contracts were negotiated when the global economy was severely depressed and cargo volumes from Asia to the US were 20% down year on year.
This is true. But what has actually changed between then and now?
Very little, it would seem, beyond the apparently belated realisation by lines that locking yourself into a 12-month contract at rate levels that do not even cover operating costs was rather a bad idea.
In these tough economic times going back to your customers and asking them for more money is an extremely difficult proposition.
Maybe some shippers will agree, but more likely this latest statement by the TSA will join a slew it has already issued that member lines have failed to put into practice.
Carriers negotiate yearly service contracts with their customers, the shippers. This year shippers won the upperhand, winning substantial discounts from carriers. Now carriers are in a panic that they cannot break even given the contracts they have signed. This doesn't sound very wise on their part, because they should know their costs pretty well, but it is very interesting that in only a couple of months, they want out of their own contracts. Call it the Obama effect.
What the article doesn't say is that this coordinated action may in fact be illegal. For many years carriers could act as a cartel and share pricing information, but the market has been deregulated, at least to the EU, and this is illegal. Perhaps it is only the pacific routes that are being affected because of this.
It all still boils down to those of us without jobs aren’t buying stuff. Shipping out our manufacturing sector was a big mistake. If your economy is 70 percent consumer spending, those consumers need to have discretionary income.
Baltic Dry Index:
Dry Bulk Shipping Rates - July 8, 2009 - BDI Down 6 Straight Days
http://daytradingstockblog.blogspot.com/2009/07/baltic-dry-index-shipping-rates-7809.html
Yes that is very true. No jobs=no one spending money. I’d imagine a lot of these people see Crap and Tax on the horizon and realize that fuel soon will again be over $4 a gallon if it passes? Once that happens people will tighen down their spending even more and what is considered a necessity now will be forgotten.
If we hadn’t shipped our manufacturing overseas, we probably would not have had such a downturn. JIMO.
A Country that can’t, won’t, or don’t manufacture their own goods, is a slave to Countries that can, do, and will.
Good points....it was totally stupid to ship our manufacturing out of the country. Not only we become dependent on others (some not friendly) to make our products...we lose the wealth-base from those factories not being in the US anymore
Probably not. In the last 40 years the world built an extremely efficient logistics system, that truly is a wonder of the world. However, it is based on a few assumptions, like labor arbitrage and cheap fuel. Any long term dislocation, and global trade can be permanently altered, to the downside. I do believe that global trade peaked in 2007, at least for 10-20 years. I believe the new model of commerce will be highly local production, but distributed knowledge.
I shuttered my Carrier and Brokerage 3/10/08. I knew, full well, what my costs were. LOL
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