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Transpacific rates will be matter of contention

According to the TSA, container shipping lines operating from Asia to the U.S. want to shore up rate gains made to date as they look ahead to the post-Lunar New Year shipping period and as 2013-14 service contract negotiations intensify.
By Patrick Burnson, Executive Editor
February 04, 2013

The battle lines between shippers and carriers comprising the Transpacific Stabilization Agreement (TSA) are shaping up early as both sides make plans for future contracting.

According to the TSA, container shipping lines operating from Asia to the U.S. want to shore up rate gains made to date as they look ahead to the post-Lunar New Year shipping period and as 2013-14 service contract negotiations intensify.

“The week-long Lunar New Year factory closures in Asia tend to pull forward spring shipments, especially among retail customers,” said TSA executive administrator Brian M. Conrad. “This translates into slowing cargo demand after the holidays, and is one of many such inflection points that can erode revenue throughout the year. Carriers are committed to keeping market rates stable over the next 6 to 8 weeks, as the contracting season ramps up.”

Member lines in the TSA are recommending an across-the-board general rate increase (GRI) on all dry and refrigerated cargo, effective April 1, 2013, in the amount of US$400 per 40-foot container (FEU) to the U.S. West Coast and $600 per FEU to all other destinations. They say freight rates remain below compensatory levels despite previous adjustments, and want to ensure that 2013-14 contract rates contain meaningful net increases relative to 2012 contract levels.

Contract negotiations are expected to accelerate in the coming weeks, and Conrad emphasized that while current market rates have shown improvement, another year of longer term rates at 2012 contract levels – or with only minimal increases – is not sustainable. “It is essential to carriers’ long-term viability that new contracts include rates that are more closely aligned with current market levels,” he said.

In an interview with LM, Conrad added that It is too soon to tell what carriers’ profits will be in 2013.

“Many factors will affect their financial situation, including the volatility of the price of fuel, which continues to represent 60% or more of carriers’ voyage costs,” he said.

The National Industrial Transportation League, meanwhile, has told the U.S. Federal Maritime Commission (FMC) that it should closely examine the ramifications and impacts that a proposed amendment to the TSA would have on shippers that move freight in the U.S. pacific trades. In a January 29 letter to the FMC, League President Bruce Carlton said the agency should examine the proposed change carefully to ensure that U.S. companies have fair and competitive transportation services.

The TSA currently makes up approximately 90 percent of the available carrier capacity operating in the eastbound Asia to U.S. trade. Under the amendment, the carrier group is proposing to expand its geographic scope and authority to include the westbound pacific trade which is now operating under the Westbound Transpacific Stabilization Agreement (WTSA). Under the proposed new structure WTSA would cease to exist.
Under U.S. law, carrier agreements such as TSA are permitted limited antitrust immunity to engage in certain collective activities. As such, Carlton said the Commission needs to review the amendment carefully to, “ensure that it fully serves the interests of shippers as transportation buyers, in addition to the carrier members of the TSA.”

The amendment will go into effect in early February, unless the FMC delays the process by posing confidential inquires and/or questions to the TSA.

About the Author

Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).

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