COMMENTARY: TSA rate decree shows lines maintain clout
News that the Transpacific Stabilization Agreement has recommended to members lines that a basement on rates be set is notable for a couple reasons.
One, it signals that carriers on the transpacific are trying to win the publicity war with shippers as annual contract negotiations go full throttle this month.
The move also closely resembles what the lines in the Asia/Europe trade did in the first quarter regarding rate increases. By publicly announcing rate increases or minimum rates, it sets a tone for discussions with shippers. Whether these maneuverings are successful will be decided over the next few weeks. Obviously, for the TSA to put out such a statement, things can’t be going too well in early negotiations.
“The unnecessary panic mentality that set in during the winter months will cost this industry heavily,” TSA Executive Administrator Brian Conrad said in a statement Thursday.
There’s another point not to be missed here, though. Carriers can use the situation to their advantage in a way of thinking. The first batch of 2008 carrier results has already been digested and shippers are well aware that carriers took a hit in the second half of 2008 — and that they are forecasting a bigger hit this year. By portraying themselves as up against the wall, it’s possible these rate increases and minimums might not fall on deaf shipper ears.
This line from the TSA speaks particularly to this strategy: “Establishing a floor on rates, in light of the recent flurry of reductions, will likely decide whether some lines continue to operate in the trade.”
Then again, an unreleased American Shipper study on transportation procurement found that 62 percent of shippers and forwarders considered rates to be the most important factor in a carrier’s bid, while a paltry 2 percent felt the risk associated with choosing a healthy transportation provider was most important. While the survey touched on all modes of transportation, it suggests that maybe shippers aren’t so inclined to be interested in the well-being of their carrier partners.
As for the second reason why the announcement is notable, it highlights the differences in the way carriers have to function these days to manage capacity and rates. While Asia/Europe shippers were confronted with a drumbeat of rate increase announcements over a month-long period earlier in 2009, transpacific shippers are being hit with a coordinated message from 14 of the world’s biggest lines. By law, it’s not a cartel action, but in practice, it’s carriers with a dominant amount of capacity in the transpacific trade all basically telling each other: “don’t charge less than this amount.”
Carriers in the Asia/Europe trade have no such privileges anymore. Perhaps it’s a scenario like this that led MOL to back out of the TSA late in 2008 so its global strategy wouldn’t be compromised by conflicting regulations.
It’s no surprise that shipper advocates see the TSA announcement as a sort of quasi-conference action.
Michael Berzon, chairman of the ocean transportation committee of the National Industrial Transportation League, told American Shipper the TSA's announcement illustrated “why we at the NIT League feel carriers should not have antitrust immunity, because it gives them an opportunity to fix prices. Carriers should price service according to the economies of their fleets and all fleets are different.”
He said such pricing floors allow salesmen from competing companies to have a common price with which they can approach customers and say they will not go below.
“It will strengthen our resolve to battle antitrust immunity,” Berzon said.
Carriers would argue that they are well within the rights granted them by the Federal Maritime Commission under the Ocean Shipping Reform Act, and that minimum rate levels are recommendations, not mandates. ' Eric Johnson