May 27, 2013

Trans-Pacific carrier discussion agreements begin trial merger

If U.S. government approves, TSA and WTSA will merge after a two-year test run; move would have no impact on rates or capacity, administrator says.

By Toby Gooley

Most of the ocean carriers plying the trans-Pacific trade lanes belong to two separate "discussion agreements": the import-focused Transpacific Stabilization Agreement (TSA) and its export counterpart, the Westbound Transpacific Stabilization Agreement (WTSA). If the U.S. Federal Maritime Commission (FMC) gives its blessing, however, those groups will merge into a single entity covering both routes.

The TSA and WTSA describe themselves as "research and discussion forums" for their members, who include some of the world's largest ocean carriers. Under U.S. law, members are allowed to develop "voluntary, non-binding rate and service guidelines" that they "may" use in their contract negotiations with importers and exporters. They also can discuss efficiency improvements, cost control strategies, market conditions, and standards for documentation and technology systems. They may not jointly set rates or limit capacity. Over the years, however, some shippers have expressed skepticism about how closely carrier members adhere to those prohibitions.

In November 2012, TSA filed an amendment with the FMC requesting authorization to expand its scope to include the westbound trade and to "suspend" the WTSA, said Brian Conrad, administrator for both bodies. After getting some feedback from the trade community and requesting some "tweaks" to the plan, the agency authorized a two-year trial that went into effect in April, Conrad said at the Coalition of New England Companies for Trade (CONECT) annual Northeast Trade and Transportation Conference in Newport, R.I.

The primary reason for the proposed merger, Conrad said, is to eliminate duplicate structures and reduce administrative costs. It will also allow carriers to discuss "round-trip network issues," he said, noting that although the same carriers belong to both agreements, they previously were prohibited from talking about both eastbound and westbound business in meetings.

Any merger—even of an administrative body—is bound to raise the specter of rate increases and capacity consolidation, and audience members questioned Conrad on that score. "Market fundamentals" will continue to drive rates, said Conrad, who insisted that the group will continue to "religiously" observe the prohibition against discussions about capacity.

About the Author

Toby Gooley
Contributing Editor
Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.

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