TSA defends omitting bunker from index
The Transpacific Stabilization Agreement, which represents 15 of the largest carriers on the transpacific trade, has defended a rate index it released last week, after maritime analyst SeaIntel questioned the TSA's decision to leave bunker surcharges out of its equation.
The index is intended to provide shippers and carriers a basis to formulate long-term indexed freight contracts. The discussion agreement decided against including bunker adjustment factor (BAF) in its calculation of the index, but did include other ancillary charges like terminal handling charges and peak season fees.
SeaIntel, in a report released Sunday, argued against leaving the bunker surcharge out because 'it is 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.'
But TSA determined that differences in bunker surcharges between newer contracts and legacy contracts, as well as between carriers, made it difficult to accurately reflect the bunker component in the index.
“All indices have their particular limitations,' TSA spokesman Niels Erich told American Shipper. 'One of the tradeoffs we face in attempting to capture the 90 percent of the trade moving under service contract is the variation among carriers and contracts in how BAF is treated. While individual carriers have increasingly made it a priority to extract bunker from base rates and assess a full floating charge, there are bound to be legacy contracts and special situations where some component of bunker cost remains in the base rate structure.
'Rather than attempting to address every conceivable scenario, TSA’s main concern is capturing revenue trends across the entire eastbound transpacific trade with base rates the key factor. Bunker fluctuates independently from other market factors; it is typically collected in a separate charge that self-adjusts quarterly with world bunker fuel prices, which have been extremely volatile for several years; bunker is such a large component of sailing costs that wide price swings can produce major distortions to index data if it is counted as just another component of freight revenue.'
Erich said other such surcharges, like terminal handling charges, peak season surcharges, or fees for transiting the Panama and Suez canals, are more predictable.
'These are far less frequently adjusted, or are predictably seasonal,' he said. 'They are easily identifiable as components of freight, and represent smaller dollar amounts than bunker. As such they are not able in the same way to supplant base rates as the dominant moving index component tracking revenue trends.'
Another of SeaIntel's critiques was that absence of a bunker component in the TSA's index prevents it from being correlated with other indexes, but Erich said the TSA 'doesn’t view its index as being in competition with the others.
'It’s one tool of many, that can be used by the shipping public alone or in combination with others according to their specific objectives,' he said. 'In that context, it will be up to shippers and carriers to decide whether or how to apply the various freight index options and to adjust for variations as needed.” ' Eric Johnson