SeaIntel questions new TSA Index

   Maritime consultant SeaIntel has questioned the validity of a rate index published last week for the first time by the Transpacific Stabilization Agreement as the index doesn’t include bunker surcharges.
   Excluding the bunker surcharge makes its virtually impossible to correlate information from TSA’s index with that of four other major indexes, SeaIntel said in its Sunday Spotlight report.
   TSA said its index excludes bunker surcharges because the price of fuel moves independently of market rates. The discussion agreement made public its index with a goal of reducing freight rate volatility and providing a benchmark from which to anchor long-term ocean freight contracts.
   ‘TSA argues that fuel surcharges (BAF) are not included, as these fluctuate independently of market movements,’ the SeaIntel report said. ‘This is technically speaking correct. However it is also well known that in down markets carriers find it exceedingly difficult to implement a BAF increase without seeing the base rate reduce by a corresponding amount. This effect is clearly present in the other four indices, where changes in BAF cannot always be traced in the all-in prices.
   ‘Additionally, even though TSA publishes a common BAF formula, several TSA carriers are using their own BAF formulas. The exclusion of BAF from the index therefore has the effect of removing a significant part of the de-facto base rate — and given differences in BAF formulas across some TSA carriers, the amount of revenue not counted differs, and hence the aggregation of data does not take place on a comparable baseline.’
   TSA did not immediately respond to a request for comment.
   SeaIntel questioned why the TSA included items like terminal handling charges and inland transportation costs that would seemingly also move independently of base ocean transportation rates.
   ‘We would assume, but do not have data to back it up, that the inland portion also moves somewhat independently from the market conditions prevailing for the ocean part of the transport,’ the report said. ‘If you as a shipper wish to enter into a long-term contract based on the TSA index, you need to make sure your inland cargo distribution matches that of the TSA carriers — however this is not disclosed.
   ‘As for the exclusion of BAF, this would entail a risk in an index-linked contract. If the BAF formula is changed by one carrier to reflect a lower fuel component and a higher base rate component, the TSA index would increase as a consequence — however the shipper might be using a different carrier who uses an unchanged BAF formula. Hence the shipper would get a higher base rate and unchanged BAF.’
   SeaIntel also points out that of the five major indices on the market, three provide rate levels in relation to an indexed benchmark of 100 points, while the other two provide information in dollar rate terms.
   ‘Indices for which the carriers are the main input providers (China Container Freight Index, TSA and Container Trade Statistics) are on an index basis, whereas (indexes with) freight rates (Shanghai Container Freight Index and World Container Index) have input from shippers included,’ SeaIntel said. ‘It is clear that carriers prefer an index rather than an average freight rate. It appears this is because they are afraid that a single published rate would be misleading.
   ‘It would appear the carriers have a justified fear that the publication of an average rate would be used by shippers as potential leverage in a rate negotiation. Whilst this argument is undoubtedly true, it disregards the fact that shippers already today use the practice of obtaining rate quotes from multiple carriers — and thus are already using such information to (re)negotiate rates.’
   SeaIntel said that schism could affect how the TSA index is received.
   ‘Whether the TSA index will succeed as an index underlying index-linked contracts would therefore seem to depend on whether shippers trust the TSA index more than they trust the other indices available.’
   The report, which gives descriptions of the five major indices, is available at SeaIntel’s Web site.