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Container Shipping Rates Kept Low by Technological Progress

Especially during historically sluggish sales, every competitive edge counts for embattled retailers. This year, shipping strategy, not typically interpreted as a key revenue driver, is assuming a more central role in retail strategy. And the good news on that front is that shipping rates from the U.S. to Asia should hold steady at their currently low prices.

The analytical estimates regarding shipping rates were disclosed at the 14th Annual Trans-Pacific Maritime conference, March 3-6. Expert panelists there discussed the rates on the spot market–spot rates are cargo rates calculated at the last minute and are generally higher than the normal contract rates negotiated between shippers and carriers. On the spot market, between mid-January and mid-February, the average cost to shuttle a 40-foot container from Los Angeles to Hong Kong was $2,085, sliding as low as $1,986 in February. Contrast this with the spot rate in May 2012: $2,337. Also, contract rates have maintained around $1,400.

The low prices are a simple function of supply and demand: as bigger vessels replace smaller ones, adding more cargo capacity, fuel consumption per container has dropped but supply has remained constant, pushing rates down.

Much more attention, especially in the apparel and textile industries, has been devoted to shipping lately in an attempt to find new ways to preserve rapidly winnowing margins. Also, retailers and manufacturers alike have become more sensitive to the ways in which shipping challenges can disrupt deliveries and diminish profitability. Last November, Karachi ports were stymied by a goods-carrier strike, which lasted for more than a week. Protesting container workers and customs officials have threatened to completely shut down the daily transportation of consumer goods if their demands remain unmet, wreaking untold economic damage on a country heavily dependent upon exports, particularly garments.

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Two container ports in Karachi are shut down, the Pakistani International Container Terminal and Karachi International Container Terminal. Authorities estimate that twelve container vessels were held up, three freighted with coal and one with cement. More than 7,000 containers with export ready goods destined for foreign locations were being held up. All in all, 35,000 containers were queued up, unable to leave their ports. It was estimated that the last strike delayed more than $390 million in goods intended for U.S. shores.

More efficient cargo ships are largely the result of new technological advancments. Michael White, president of Maersk North America, said, “It is clear that carriers have to take advantage of new technologies. The larger vessels will bring about a better economy of scale and fuel economy. If you look at other dynamics, you still have container carriers scrapping vessels that are younger than 20 years old. It is up to all the carriers to deploy capacity in a more agile way for the demand we expect to see.”