BC exporters are expecting shipping container costs to soar soon as global carriers look to recoup last year's losses.
Although it remains unclear what the new per-container cost increase will be in B.C., carriers and exporters agree that one is coming and customers will likely have to eat the charge.
A US$100 per 40-foot container cost increase from Pacific Northwest ports has been recommended by carriers in the Westbound Transpacific Stabilization Agreement (WTSA), an organization of shippers that handle traffic between U.S. and Asian ports.
That's a significant cost increase given that, not long ago, container shipping lines charged less than US$1,000 per 40-foot container.
Although that recommended rate increase is for U.S. West Coast shipments to Asia and does not yet affect shipments from B.C., Canadian shippers often follow suit and many WTSA members are also members of the Canada WTSA (CWTSA).
"Often their actions parallel those of the U.S. agreements," said WTSA spokesman Niels Erich.
At the same time, costs for inbound container shipments from Asia to the U.S. have increased significantly. A US$400 per 40-foot container charge was recommended just two weeks ago.
That rise comes ahead of a previously announced May 1 recommended increase of US$500 per 40-foot container.
Those cost increases mean it will soon become more expensive to import goods to North America from Asia.
"Carriers in the Pacific are at a critical juncture," said TSA executive administrator Brian Conrad. "Once again, as in 2009, we are back to a situation in which nearly all major carriers in the trade are moving cargo at a loss."
Maersk Line, the world's largest ocean carrier, lost US$602 million last year due to low freight rates and rising fuel costs – its first such loss since it was founded in 1904.
In B.C., exporters are preparing for what could be a significant increase in container rates that's just weeks away.
"We are expecting that over the course of this year it's going to go up by a fairly substantial margin," said one source that asked to remain anonymous.
Freight rates per 40-foot container are rumoured to be headed for increases of $100 this month, and $200 in May, making it more expensive for B.C. exporters to get their goods to market.
This at a time when B.C.'s economy is becoming increasingly reliant on exports to the Pacific Rim.
BCStats data shows that the value of B.C. exports to the Pacific Rim, including Japan, soared 114% to $14.2 billion between 2001 and 2011.
Nathan Hall, president of Navcor, which is owned by and handles transportation for B.C. lumber producer Conifex Timber (TSX-V:CFF), said the container cost increase is expected.
He added that his company would continue to move most of its goods through the Port of Prince Rupert to avoid congestion at Port Metro Vancouver.
"It's not going to kill us or our ability to access the market, but with every increase the U.S. market looks more attractive for lumber," said Hall.
Stephen Brown, president of the B.C. Chamber of Shipping, called the cost increase "rate restoration."
"The rates came down both eastbound and westbound to a ridiculously low level in 2011, and so what you have is a situation where all of the big carriers have lost a lot of money … [and] there is a concerted effort to bring the rates back to a level where at least, if they're not making money, they're not losing money."
Brown added that a more sustainable 40-foot container rate would be between US$2,000 and US$2,500, significantly higher than the current rate of between US$1,500 and US$2,000.
In a related issue, B.C. exporters are also facing an increasing shortage of containers.
"That's becoming an increasingly huge challenge, mainly because the export marketplace is growing faster than the import marketplace right now," said Don Krusel, president and CEO of the Prince Rupert Port Authority.
Last year, Prince Rupert, for the first time, shipped more loaded containers to foreign markets than empty ones as Asian nations increasingly sourced raw materials from Canada.
But Port Metro Vancouver manager of supply chain performance Dale Thulin said a shortage of containers has yet to become a problem in the Lower Mainland.
Larry Hughes, CFO of West Fraser Timber (TSX:WFT), said the issue hasn't created a problem for the forestry giant.
"[It] will cause some additional costs and some delays but [is] not expected to have a material impact on us." •
