State of the U.S. Trades
Since 1916, the Commission and its predecessor agencies have effectively administered Congress's directives for oversight of the liner shipping industry. Working with the industry and its customers, we have developed a regulatory system that allows for necessary oversight activity with minimal impact on the efficient flow of U.S. exports and imports. I would like to highlight the state of major U.S. trades as well as identify some significant current events.
Due to the global recession's impact on international trade flows, Fiscal Year 2009 was perhaps the worst year to date in the forty-year plus history of international containerized shipping. The total volume of U.S. liner exports shipped worldwide fell by 14 percent in contrast to the preceding fiscal year's 16 percent increase. Similarly, the total volume of liner imports to the U.S. declined by 16 percent compared to a decline of 6 percent in Fiscal Year 2008. Freight rates dropped precipitously, and liner companies reduced and reconfigured their service offerings to adjust to the reduced demand and consequent overcapacity of vessel space.
On a global scale, container trade contracted by 11 percent. By end of the fiscal year, excess capacity resulted in the idling of over 500 container ships, or 10 percent of the total fleet capacity in twenty-foot equivalent units (TEUs) – a sharp increase from the 2 percent idle capacity in Fiscal Year 2008. Overcapacity problems were exacerbated by pre-existing vessel orders that expanded worldwide containership capacity by 10 percent as of July 2009.
China remained our leading overseas trading partner, and trade with nations in northeast Asia continued to account for over half of U.S. combined containerized imports and exports. Concentration among carriers remained relatively unchanged from Fiscal Year 2008, with the top 10 carriers accounting for about 60 percent of the worldwide containership capacity.
In the largest of the U.S. liner trades, the Trans-Pacific trades, carriers reduced shipping capacity by almost 10 percent on a year-to-year fiscal year basis following a decline in U.S. export container volume to Asia of 12 percent and a decline in U.S. import container volume from Asia of 16 percent. Nonetheless, Asian import cargo continued to dominate the trade. For every TEU of U.S. exports moved outbound, 2.2 TEUs of imports from Asia were shipped inbound. In the outbound trade direction, members of the rate discussion agreement, the Westbound Transpacific Stabilization Agreement, had a combined market share of 63 percent. In the inbound trade direction, the combined market share of the rate discussion members of the Transpacific Stabilization Agreement (TSA) dropped from 86 percent to 83 percent. However, with Maersk Line's recent return to TSA, the organization's market share now exceeds 94 percent.
The fourth quarter of calendar year 2009 and early 2010 saw an unusual and largely unanticipated increase in cargo volumes shipped from Asia as well as an increase that had been expected in U.S. exports. It is unclear how much of this recent increase in imports from Asia was related solely to decisions by U.S. companies to replenish low inventory levels, and how much represents a longer-term revival of demand for cargo space.
U.S. – North Europe Trades
In the liner trade between the U.S. and North Europe, cargo volumes dropped significantly in both trade directions. U.S. exports fell by 28 percent compared to the preceding fiscal year. Import cargo from North Europe decreased by 18 percent. To cope with the declines in cargo volume, major carriers in the trade cut back their services to remove excess vessel capacity and further coordinated their operations through vessel sharing agreements. By the end of the fiscal year, it was reported that annualized vessel capacity in the trade was reduced by 18 percent in the outbound direction and 11 percent in the inbound direction. Despite such capacity reduction, utilization was only at 68 percent in both directions.
In October 2008, the European Union (EU) repealed its block exemption from competition rules for liner shipping conferences. In place of a conference agreement, carriers in the U.S.-EU trades formed the Container Trade Statistics Agreement, which established an information exchange system among its members, and formed a trade association called the European Liner Affairs Association. In September 2009 the European Commission renewed a revised version of its block exemption regulations for ocean carrier consortia agreements, which allow them to share vessel space, effective for the period from April 2010 through April 2015.
U.S. – Oceania Trades
Between the U.S. and the region of Australia, New Zealand, and the Pacific Islands, the volume of liner cargo fell by about 10 percent in both trade directions, and remained substantially imbalanced. U.S. export cargo exceeded import cargo by 70,000 TEUs, or about 40 percent. Over the fiscal year, coordinated service changes implemented by carriers through their vessel sharing agreements resulted in capacity reductions in both trade directions. By the end of the fiscal year, the reductions in vessel capacity were estimated at 12 percent in the outbound trade direction and 17 percent in the inbound trade direction.
The structure of the trade for container carriage between the United States and Australia, New Zealand, and the Pacific Islands may have the potential to generate anticompetitive conditions for U.S. importers and exporters. Six carriers control over 80 percent of the market and have overlapping rate discussion and capacity management authorities. Accordingly, the Commission is closely analyzing that trade, and has issued two orders recently requiring the carriers to submit data.
U.S. – South America Trades
Between the U.S. and South America as a whole, liner exports in the outbound trade direction declined by 18 percent, and liner imports moving inbound fell by 14 percent in comparison to the preceding fiscal year. The volumes of cargo shipped inbound and outbound was closely balanced. The region can be generally divided into two liner trade sectors: the west coast of South America and the east coast of South America.
Carriers operating between the U.S. and east coast of South America do not participate in a broad-based discussion agreement. In the western sector, however, most of the major carriers that provide direct service are members of the West Coast of South America Discussion Agreement (WCSADA), a discussion agreement with voluntary rate authority. During the fiscal year, a number of membership changes occurred that raised the market share of WCSADA to 85 percent in the outbound direction and 63 percent in the inbound direction.