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An internal survey of member lines of the Transpacific Stabilization Agreement (TSA) that measured total collected bunker charges relative to bunker fuel costs, as reflected in the TSA bunker surcharge calculation formula, revealed that TSA lines failed to collect an estimated $299.1 million over the period of May-July 2008.

Commenting on the findings, TSA chairman Ronald D. Widdows said “It’s a safe statement that no carrier is operating profitably in the eastbound transpacific market today. Rates have not kept pace with operating cost increases, and separate charges to address fuel and other costs have been routinely undercollected in a highly competitive environment.

"No container line is in a position to run a scheduled service with ships running at less than full utilization, given current costs,” added Widdows.

TSA has recently made refinements to its bunker charge formula, which it will be rolling out for application in new contracts. The new formula, in part a response to customer input, is based on fewer variables and establishes separate East Coast and West Coast charges.

TSA executive administrator Brian M. Conrad further noted that collection of inland fuel surcharges have remained static since the beginning of 2007, while U.S. highway diesel fuel prices, on which the surcharge is based, rose from $2.58 per gallon in January 2007 to $4.76 per gallon in July 2008.

Highway diesel price increases are further compounded by higher rail and truck surcharges paid by container lines as the lead logistics providers in an international move.

A typical situation involves customers directing their individual carriers to use specific trucking firms, which in turn use that leverage to raise their fuel surcharges to the container lines. Those charges are often not fully charged back to the shipper. Over past 20 months, TSA estimates that member lines collectively lost another $680 million in undercollected inland fuel costs.

“TSA was asked by its members to analyze fuel charge collections versus costs, and when we made the presentation the data we developed was sobering,” Conrad said.

“The Asia-U.S. trade is a dynamic, highly competitive market; It’s easy to lose track of cumulative concessions made to customers in contract negotiations or to address specific needs throughout the year. But those concessions add up, and with fuel the largest single cost component in a scheduled container service, they eventually take a serious toll on every carrier’s financial viability.”

Conrad added that TSA lines are looking ahead to continued increases in non-fuel operating costs in 2009-10, driven primarily by higher rail intermodal charges, local and inland equipment repositioning costs, equipment maintenance and repair expense, rates charged by Asian feeder services, and labor costs in the U.S.

“These are fixed costs associated with the kind of premium, scheduled services customers have historically demanded in the transpacific,” he said. “They remain constant, whether the market is slow or booming, and carriers have resolved to re-establish the link between operating costs and the rate structure.”

This is particularly important, Conrad emphasized, given a serious of unknown costs on the horizon, such as the Southern California clean truck program and associated fees; implementation of the transportation worker identification credential (TWIC) program; and various port infrastructure and environmental per container fees, all expected to take effect in the coming year.

TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the U.S.

Members include APL, Ltd., China Shipping Container lines, CMA-CGM, COSCO Container Lines, Ltd., Evergreen Line, Hanjin Shipping Co., Ltd., Hapag Lloyd AG, Hyundai Merchant Marine Co., Ltd., Kawasaki Kisen Kaisha Ltd. (K Line), Mediterranean Shipping Co., Mitsui O.S.K. Lines, Ltd., Nippon Yusen Kaisha (N.Y.K. Line), Orient Overseas Container Line, Inc., Yangming Marine Transport Corp. and Zim Integrated Shipping Services.