Fuel surcharges are the top concern for many shippers


Imports from Asia via all-water routes to U.S. East Coast ports remain strong despite the weak U.S. economy, while exports continued to fill ships thanks to the boost from the weak dollar.

As a result, exporters and forwarders often find themselves scrambling for containers to carry their cargo.

But for many shippers and carriers, bunker fuel surcharges are the top concern. The surcharges are designed to offset the difference between a base cost for fuel built into a carrier’s official rate and the actual cost paid by the carriers when they fill up their ships.

More than 90 percent of the contracts signed by members of the Transpacific Stabilization Agreement this year contain provisions for a floating bunker surcharge and significant increases in the portion of the published surcharge level collected.

“Some fuel surcharges will go up to as much as $1,500 on a 40-foot container,” said Richard G. Phillips Jr., chief executive of Pilot Freight Services. “So you will hear some screaming because fuel prices have been down over the summer and some people do not know there is a month or two lag on the increases and decreases.”

The Westbound Transpacific Stabilization Agreement, which represents 10 carriers handling exports from Asia to the U.S., will begin implementing a new formula on Oct. 1 that will, for the first time, prescribe different bunker surcharges depending on whether a container is exported from the East Coast or the West Coast. Based on one hypothetical case, the rate from the East Coast could be $1,515, compared with $767 from the West Coast.

As of press time, the TSA had not announced any plans to recommend different surcharges based on whether the cargo is going to the East Coast or the West Coast. Both carrier groups raised their recommended surcharge for 40-foot containers to $1,490, effective Sept. 1, up from $1,265 in August. The TSA’s recommended surcharge will drop to $1,355 in October.

Neither the TSA nor the WTSA has the power to enforce their recommendations; implementation is up to the individual carriers, and what the carriers publish and what they collect are often two different things.

The average price for a ton of bunker fuel was $675 on Sept. 1, nearly three times as much as at the beginning of 2007.

“The need for structural change in fuel recovery in the trans-Pacific market was critical,” a TSA spokesman said earlier this year. “We appreciate the understanding of the shipping community that fuel costs are a real and present threat to lines’ ongoing ability to adequately serve this corridor, through which most U.S. trade flows.”

The base rate for a 40-footer shipped via all-water to New York could be $3,700, according to a sales representative from a leading carrier, compared with to $4,600 for landbridge services, where cargo is unloaded at a West Coast port and railed across the country to the East Coast.

Determining the actual cost differential, however, is difficult because there are so many variables. For example, container lines assess an inland fuel surcharge on landbridge services to cover rising rail and truck fuel costs, while shipments through the Panama Canal pay a Panama Canal surcharge.

But the bottom line for Audiovox Electronics Corp. is that all-water imports cost $600 to $700 less per 40-foot container, according to Pat Moffett, vice president of global logistics and customs compliance.

All-water services via the Panama Canal take five to 10 days longer, depending on the ports of origin and destination. APL, for example, has a landbridge service from Hong Kong to New York via Seattle that takes 18 days, while the fastest vessel transit time is 22 or 23 days, said Gary Ferrulli, president of Global Transportation and Logistics, a consulting firm based in Chandler, Ariz.

In many cases, however, there may be no difference, especially given the potential for delays at the ports or with the railroads, said the carrier sales representative who asked not to be identified. She said she gets upset with customers who prefer landbridge service. It requires more handling because the container must be transferred from the ship to a train at the West Coast and then railed across the country, as opposed to staying on a ship for the long voyage through the Panama or Suez canals.

“We always favor putting goods on an all-water route, as the rail in the States is just not reliable enough,” said Phillips of Pilot Freight. “There is no national rail system, and there are continuity problems, problems with getting containers in the right spots and even weather problems such as the floods in the Midwest.”

The higher costs of landbridge services, uncertainty about schedule reliability, and the increase in distribution centers operated by big-box retailers and importers in and around East Coast ports have combined to reduce landbridge’s share of cargo moving from Asia to the East Coast.

Carriers have reduced the number of landbridge services, but landbridge cargo still accounts for at least 40 percent of all imports from Asia to the East Coast, according to Ferrulli.

Moreover, the contract settlement between West Coast employers and the International Longshore and Warehouse Union may shift some import traffic that had moved to the East Coast in the first half of the year back to the West Coast.

Export cargoes originating on the East Coast have always moved primarily via East Coast ports, and that’s not going to change.

Brian M. Conrad, the TSA’s executive administrator, said its members have gotten varying estimates of cargo volume from their retail and other customers, but that he expects a modest peak season for imports.

But thus far, it’s been a dismal year for imports. The monthly Port Tracker report for August, published by the consulting firm Global Insight together with the National Retail Federation, projects an overall drop of 6.4 percent in U.S. imports for the year. It does, however, project a slight uptick in October.

Exports from East Coast ports through the Panama and Suez canals to Northeast Asia and Southeast Asia are projected to exceed exports to North Europe in 2008, according to PIERS Global Intelligence Solutions, a sister company of Shipping Digest. New York, for example, will export nearly 450,000 TEUs to Asia ports this year, and only about 395,000 to North Europe.

Savannah is even more lopsided, with nearly 500,000 TEUs projected to go to Asian ports and only about 145,000 to North Europe and another 175,000 to the Mediterranean.

In Charleston, however, PIERS projected that North Europe would be the dominant market, with exports of nearly 260,000 TEUs compared with a little more than 100,000 TEUs shipped to Asia.

Peter Zantal, general manager of strategic analysis and industry relations for the Port Authority of New York and New Jersey, said imports from Northeast Asia were up 4 percent and those from Southeast Asia were up 17 percent in the first seven months of the year. The total imports of 721,252 TEUs on these trade routes were up 7.8 percent year-to-year through July, he said.

“We are increasing tonnage and market share on these routes,” he said.

Exports to Asia from New York in that same time period totaled 228,352 TEUs – up 29 percent from the same period a year before, Zantal said. Northeast Asia exports comprised 162,049 TEUs through July and Southeast Asia exports 66,303 TEUs, he said. Exports overall rose 25 percent during the first half of the year. Lumber, wastepaper, automobiles, foodstuff, medical equipment and grain topped the manifests.

Zantal think the carriers stand a good chance of making the floating bunker increases stick this year, at least until October and November. He thought any short-term migration of sourcing to South America and Mexico is unlikely given the large Asian trade already established.

While the stacks of empty containers around the Elizabeth-Newark container terminals are down considerably from previous years, there are still plenty of containers available for exporters in the New York-New Jersey area, Zantal said. “We are still an import port. So we do have containers,” he said.

Throughout much of the country, however, there is a shortage of containers. Phillips said it can cost shippers $200 to $500 to get a container to the Midwest.

Virginia ports are seeing a growth in the all-water routes from Asia and will see further increases when the Panama Canal is able to handle larger ships, according to Joe Harris, a spokesman for the Virginia Port Authority.

“At this point, we are the only East Coast port that has 50 feet of water and no overhead obstruction.” he said. “We are also ready, in terms of cargo-handling infrastructures, cranes, rail and labor agreements, for the large ships that will be used in this trade.”

Norfolk is claiming the fastest transit time on export routes from the U.S. East Coast via the Suez Canal, he said. The “Suez Express” service stops at New York, Charleston, Savannah and Norfolk, making Norfolk the last outbound port to Asia.

The Suez Express is operated by APL, MOL, Hyundai, CMA CGM and Evergreen.

“Ships are generally full in both directions,” said Mike Zampa, director of corporate communications for APL.

Zampa added that exports from all East Coast ports are increasing through the Panama and Suez canals. The Suez is favored right now, he said, because it can handle the larger, more-efficient ships.

Savannah has seen the sharpest increase in exports to Asia. Total volume during the fiscal year that ended on June 30 topped 2.6 million TEUs, with exports and imports both topping the 1 million mark for the first time.

The port’s marketing effort now includes an office in Vietnam.

“As U.S. retailers and manufacturers are looking to diversify their supply-chain strategies in Asia, Vietnam is a logical step to support the sourcing needs of Savannah customers such as Wal-Mart, Target, K-mart/Sears, The Home Depot, Lowe’s, Dollar Tree, IKEA and Pier 1 Imports,” a spokesman for the port said.

Container carriers offer 21 all-water services to Savannah, including five via the Suez Canal. The port is deepening its harbor from its current depth of 42 feet at mean low water to 48 feet in anticipation of more Asian traffic in larger ships. The project, which officials expect to be completed in 2013, could when finished accommodate larger vessels beyond the 5,000 TEU-class currently calling at the port.

Ocean shipping isn’t for everyone. Phillips said high ocean rates make airfreight a more attractive alternative for some shippers. “We’ve seen air shipments go up; very high-end equipment such as medical equipment, even some clothing. It may seem bizarre to be flying T-shirts by plane, but for some companies, if Paris Hilton wears something new, they’ve got a two-month window to get those clothes on the shelves.”