ANALYSIS: Maersk back in TSA fold

ANALYSIS: Maersk back in TSA fold    Maersk Line is rejoining the Transpacific Stabilization Agreement, the Danish container line said Monday.
   It marks a major boost for the discussion agreement, which governs non-rate interaction between carriers engaged on the transpacific trade lane. Maersk becomes the 15th member line in the TSA, following the lead of rival European carriers Mediterranean Shipping Co. and CMA CGM, which rejoined the agreement in the last couple of years. Maersk dropped out of the TSA five years ago.
   “Five years ago, the market conditions were vastly different than they are today,' said Lars Mikael Jensen, vice president of Pacific trade, network and product for Maersk Line. 'Maersk Line is convinced that restoring profitability long-term is needed in the marketplace and has demonstrated market leadership in this regard. It is imperative that service levels involving vessel capacity and string frequency across the Pacific do not suffer as a result of continued rate deterioration.'
   That the TSA has now secured the participation of the world's three largest carriers is a major development, especially considering that the lines saw TSA participation as unnecessary when demand was higher than supply a few years ago. It also more than offsets the departure earlier this year of MOL, which left the TSA in order to avoid potential conflict with European trades after the EU ban on conferences went into effect in October 2008.
   Maersk’s move underlines a couple of issues. First, Maersk, MSC and CMA CGM, which have begun collaborating on services on the transpacific, are clearly seeking to exert a greater influence on the trade through the TSA. Second, it shows that some lines are seeking refuge from the conference ban on trades to and from Europe in places where interaction between carriers is allowed.
   That's not to intimate that the three European giants will suddenly fall afoul of EU rules by discussing trades to and from Europe. More to the point, they will focus their energies on discussions of capacity where such interaction is legitimate.
   Europe/Asia rate levels have fluctuated more dramatically than those on the transpacific, but that doesn't have as much to do with the end of the conference ban as it does the nature of contracts on that trade, which tend to be quarterly rather than yearly, like on the transpacific.
   The absolutely critical nature of annual contract negotiations on the transpacific, which are confidential, clearly has made Maersk (and earlier MSC and CMA CGM) see there is value to participating in the TSA in the current depressed rate environment.
   To what extent did the TSA's new structure (with NOL Chief Executive Ron Widdows fronting the agreement instead of Albert Pierce) influence the European carriers to come back? That's unknown. It's also unclear whether the European lines were lured back by the TSA's new drive to become more transparent to shippers in their actions, including meeting regularly with a cadre of shippers.
   The TSA did not respond to American Shipper’s request for comment on Maersk rejoining the discussion agreement.
   'Most transpacific carriers are operating at a loss,' Jensen said. 'To overcome the challenges facing the industry, it is crucial to build a cohesive relationship with shippers. The market remains extremely fragile; continued rate declines could result in far-reaching and possibly permanent implications for global trade, including fewer services.'
   TSA last month said it was seeking rate increases of $800 per container in next spring's contract negotiations, and Maersk will no doubt want to bolster that rate restoration drive.
   'The purpose of Maersk Line's participation in the TSA is to develop a platform that allows customers and carriers to find stability for years to come, avoiding the gross fluctuations of 2009,' Jensen said. 'This business must be managed for long-term health and a return to profitable and sustainable operations.
   'Many factors have impacted rates. These include decreased volumes, fuel price volatility and excess capacity. Maersk Line has taken drastic steps throughout the year and made numerous adjustments to services, routes, port calls and staff.' ' Eric Johnson