The Transpacific Stabilization Agreement, a legacy of container shipping’s old ‘conference’ system that set prices and coordinated the behavior of shipping lines, is to close next month after concluding that its original mission was no longer viable.
The decision comes several weeks after its largest member, Maersk Line, announced its resignation from the TSA, a move that was set to see the market share of the TSA’s member lines on the transpacific fall to around 65%, compared to more than 80% in the past.
Brian Conrad, executive administrator for the TSA, commented: “TSA has for many years served a valuable function to the carriers and other industry stakeholders. TSA has been a key element in helping to maintain and grow a wide range of carriers operating in the trade over the long-term, offering shippers the broadest, most reliable choice of service options possible. It has also been a strong advocate for carrier interests with both global regulators and the shipping public.”
Regarding TSA’s decision to close its doors, Conrad commented: “The commercial and operational environment in the transpacific trade and, more broadly, in ocean transportation worldwide, has experienced significant changes in the past few years that are likely to continue through 2018 and beyond. During these challenging times in shipping, it became apparent that the TSA’s original mission was no longer viable, but I believe that TSA has performed an important role over the years in supporting the development of US international trade.”
Although the full reasons for the decision were unclear at the time of writing, it is thought that recent rates volatility in the transpacific market reflected the weakening influence of the TSA and its member lines.
As Lloyd’s Loading List reported last December, the inability of lines to exercise supply-side discipline was a feature of the transpacific market during 2017. For example, TSA carriers had made up to 18 attempts to impose general rate increases (GRIs) ranging from $400 to $1,000 per feu last year, but none of the initiatives found serious traction.
Discussing Maersk’s decision to withdraw from the TSA in December, industry analyst Alphaliner speculated that Maersk’s departure may have been prompted by frustration at the lack of success of those GRIs.
“Numerous attempts to implement General Rate Increases, both by member carriers and non-members of TSA, have already failed this year and Maersk’s decision to withdraw from the TSA in December could further de-stabilise the trade,” said Alphaliner. “[Maersk’s] resignation is the latest in the series of recent departures from the transpacific discussion group that has already been weakened by the resignation of several members − K Line, NYK and Zim − as well as by the exits of Hanjin Shipping and CSCL in 2016.”
Alphaliner continued: “Maersk’s departure will leave the TSA carriers’ share of the transpacific trade at only 65%, compared to a peak of over 80% in the past. With significant capacity expansion planned in the Far East-North America trade in May next year, the TSA’s weakened membership position could lead to further rate volatility in 2018.”
The TSA was established in 1989 and over time, replaced a more rigid rate conference system in the Asia-US market. That reflected an evolutionary process in liner shipping – from a heavily regulated common carrier system of fragmented trade lanes, basic port-to-port ocean transportation and protection of national flag fleets for trade and security reasons, to a global, more vertically integrated commercial system offering customized, value-added logistics services.
Until as recently as 1999, ocean carrier conferences engaged in joint pricing and service contract negotiation, although that function ceased following competition objections led by shipper organisations. Nevertheless, the TSA was granted antitrust immunity in the US for its member lines to exchange market information, jointly conduct market research, and to “develop voluntary, non-binding guidelines for rates and charges” – behaviour forbidden under competition law in Europe – as well as to discuss ways members can manage costs and improve efficiency.