Mar 2, 2015

HMM to suspend JAS Japan-NA West Coast service

South Korean operator Hyundai Merchant Marine (HMM) will suspend its JAS service on the Japan-North America West Coast route as from the end of April 2015. HMM is offering JAS via space charter from a shuttle service run jointly by Mitsui OSK Lines (MOL) and Kawasaki Kisen Kaisha (K Line) on the route. HMM abandoned to maintain JAS as it saw little prospect for improved profitability on the route against the backdrop of freight rates for ex-Japan cargo stuck to very low levels. For its North America-bound cargo, HMM plans to utilize slots on other G6 Alliance services calling at Japan from here on, but with this, HMM will have no ex-Japan PSW-bound direct services. APL Ltd. also ceased handling cargo via JAS in October 2014, citing similar reasons to HMM's. A tendency to scale down services bound for Japan market is gradually strengthening.

HMM's final vessel in JAS will be the MOL Experience due to call at Kobe port on April 28. However, considering that delays to ship schedule have been continuing at U.S. West Coast ports, there is a possibility of the MOL Experience being replaced by other vessel.

JAS is a dedicated shuttle service run jointly by MOL and K Line between Japan and North America West Coast. On the route, 8,000-TEU or laver ships are increasingly deployed of late, but JAS is offered via five 5,000-TEU ships because the service is dedicated to Japan market. Service rotation is: Kobe, Nagoya, Shimizu, Tokyo, Los Angeles, Oakland, Tokyo, Kobe. Being a shuttle service directly linking Japan to PSW ports, JAS has a superiority in transit time. However, as many operators charter slots from JAS, it makes it difficult for them to differentiate themselves in areas other than freight rates.

After suspending service via JAS, HMM will continue handling cargo to/from Japan via PA1 and PA2 it currently offers as a member of G6 Alliance. PA1 calls at Kobe, Nagoya and Tokyo, after which it sails to PNW ports including Tacoma and Vancouver, and then heads for Los Angeles and Oakland. As ships arrive at PNW ports ahead of PSW ports, transit time for PSW ports inevitably gets longer. Meanwhile, PA2 calls at Kobe and Tokyo, and handles mainly East Coast-bound cargo.

HMM has long provided PSW service, the largest market in North America, utilizing JAS. However, HMM found it unavoidable to suspend JAS due to protracted slump in freight rate levels for ex-Japan cargo and a widening gap of freight rates between ex-Japan and ex-Asia cargo. In contrast to ex-Asia North America-bound market, where freight rates flexibly fluctuate in response to the cargo market trend, ex-Japan cargo is mostly covered by long-term transport contracts which fix freight rates to certain levels, preventing operators from restoring rates or compensating them for increasing costs in the middle of contract terms. Being a dedicated service for Japanese shippers has established a structure in which shippers tend to get the upper hand at a rate negotiating table, giving a spur to the already slumped rates of ex-Japan cargo.

In October 2014, APL suspended cargo handling via JAS citing a deteriorating balance sheet, as mentioned above. In January 2015, Maersk Line and Mediterranean Shipping Co. (MSC) as well suspended their joint Japan-North America West Coast service TP5/Sunrise. Given the environmental changes such as the enlargement of boxships, increasing costs from heavy congestion at U.S. West Coast ports and a growing gap of freight rates between ex-Japan and ex-Asia cargoes bound for West Coast. operators, centering on overseas ones, are rapidly moving toward reviewing their services to the Japanese market.

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