Maybe those earlier predictions of trans-Pacific vessel overcapacity in 2007 were more dire than necessary. (How "dire" they were in the first place depends, of course, on which side of the fence you're on. Carriers don't welcome an environment in which too many ships are chasing too little cargo, because that depresses rates. Shippers, on the other hand, are perfectly happy with such a scenario.) But the Transpacific Stabilization Agreement, a voluntary discussion group of 11 carriers, now sees an improving market for the industry. (Again, "improving" is something of a loaded term, given the relatively good fortunes that carriers have enjoyed over much of the past several years.) According to TSA, expectations of strong cargo demand and less-than-expected capacity increases will result in a more balanced relationship between supply and demand than was forecast only recently.
Following one of its periodic owners' meetings in Hong Kong, TSA said it sees continued double-digit growth in world trade, fueled by Asian exports. That's not an especially radical forecast, but the carriers are also predicting tighter controls over capacity growth. Considering that they're the parties responsible for asserting such controls, one could comfortably accept the prognosis. Analysts had earlier predicted that trans-Pacific carriers, motivated by a sharp rise in exports from Asia to North America in recent years, would flood the market with new and bigger ships in 2007 and beyond. That action would trigger something of a rate war, undermining many of the gains that carriers had won during the surge. But TSA doesn't see that happening. Carriers both inside and outside the group now realize that "they must adjust their capacity to reduce cost and better align with market demands, not just in the slack season but throughout 2007," TSA said in a statement released after the Hong Kong meetings.
Moreover, TSA said, service contracts being signed this year are showing "a significantly improved environment," following a global downturn in rates in 2006. That means higher freight rates, the result of carriers and shippers alike realizing that landside delivery costs "have increased dramatically over the last two years." Carriers need to improve profitability if they are to reinvest in equipment and facilities needed to handle the coming rise in global trade, TSA added. Current trends suggest they are "getting a bit smarter about how to manage [their] business in a challenging environment," said Ron Widdowes, chairman of TSA's Executive Committee.
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