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Ocean freight rates set to rise July 1

Published June 21, 2017

TAICHUNG, Taiwan (BRAIN) — Ocean freight rates from Asian ports to the West Coast are on the rise as shippers have reduced capacity and as the global economy posts stronger growth.  

Members of the Transpacific Stabilization Agreement (TSA) consortium — a group of 15 major shipping lines — have approved rates that take effect July 1.

The rate for a standard 40-foot container is pegged at $1,000; a 40-foot HQ (a container with a higher roof line) is set at $1,125; while a 45-foot container is priced at $1,266.

The OEC Group with worldwide offices including a branch in Taichung warned its clients of the higher rates in a recent letter. OEC provides freight transportation, logistics and information services to more than 50,000 customers.

A 40-foot container, typically used in the bicycle industry, holds — on average — about 350 units. That translates into a unit cost of $2.85 per bike to reach a West Coast port. U.S. importers bring in more than 15 million units a year, most are destined for the mass market.

Rates have been rising worldwide since the first quarter after plunging in mid-2016 to the lowest levels seen in recent years. Shippers have been plagued with overcapacity since 2008, driven by the global recession. That led to the bankruptcy of Hanjin last August, a South Korean carrier ranked as the world’s seventh biggest in capacity.

The new rates will hit the industry as it ramps up final shipments for 2017 bikes and starts shipping 2018 models later in the year.

The Shanghai Containerized Freight Index (SCFI) noted that spot-market rates for freight to the West Coast rose 1.14 percent in one week from June 9 to June 16. Currently, spot market rates from Asian ports to the West Coast average about $620 per container; to East Coast ports the average is about $845.

For example, Maersk Line, the world’s largest container operator, recently told investors that freight rates had increased 4.4 percent just in the first quarter alone. In its notice to customers, OEC Group warned that it’s impossible to predict the future market based on current trade conditions.

Jay Townley, an industry consultant who has had years of experience in negotiating freight rates while at Schwinn and other companies, said the rate increases also would hit shipments of tires, parts and accessories heading to the U.S. mainland.

“Bigger suppliers like Trek, Specialized and others negotiate freight rates in advance, but smaller suppliers have less clout,” he said. The new rates, however, were just recently announced and most of the industry may be unaware of the increases, he added.

“The amount involved is not inconsequential,” Townley said. In the past, he noted, some companies would add a surcharge on costs to dealers.  “I don’t know if that will happen this time, but dealers should be aware,” he said.

 

 

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