Business is lousy. The buyers aren’t out there because they’re out of work and have no money to spend. Ask anyone.
Automobile dealers and retailers are hurting, and those that haven’t shut down are having sales events and offering price reductions on everything they have in stock. Price reductions, in fact, have been in effect for some time now – all the way back through the supply chain – right to the manufacturing centers in Asia. But things just keep getting worse. Ask anyone.
“The only way to move this inventory would be to give it away,” one retailer opined.
On second thought, the man said, continued price reductions will eventually bring my goods within the reach of those who still have some money to spend. That’s the way business is stimulated. Ask anyone.
But don’t ask the TSA. The TSA (Transpacific Stabilization Agreement) members include APL, Hyundai Merchant Marine, China Shipping Container Lines, “K” Line, CMA-CGM, MSC, Cosco, NYK, Evergreen, OOCL, Hanjin Shipping Yangming, Hapag-Lloyd and Zim, and they as a group feel that this simple business principle no longer applies to them.
In recent months, as demand fell and more and more of the euphorically-ordered 10,000 to 12,000 TEU leviathans were being completed and delivered by Asian shipyards, rate levels were forced downward – as one would expect. Even if no new ships were delivered, however, the worldwide economic downturn would have called for rate reductions, but to be saddled with this excess capacity in an extending period of declining demand was like getting hit with a one-two punch. The only logical solution in those circumstances would be to lay up as many ships as possible, and this is what the lines have been required to do. Laying up excess capacity costs much less than keeping idled vessels in service, and makes it easier for carriers to live with the price/rate reductions called for in today’s economic climate. Ask anyone.
But the TSA doesn’t see it that way. The group met in Hong Kong earlier this week and heard its executive administrator say that shipping rates had been taken to “non-remunerative levels” and that member lines had decided against maintaining these rates beyond January 31st. This announcement is being interpreted as a message to shippers that rates will go up in April contract negotiations because the TSA has decided that the present rate structure cannot continue.
“The rate actions seen in recent weeks are short-sighted and regrettable. They haven’t increased anyone’s market share and they do not adequately reflect operating costs.” the administrator said.
So naturally, increasing costs to consumers will encourage demand at the retail end. Right?
Carriers are their own worst enemies. Ask anyone.