The major container shipping companies in the transpacific want to create a single organization in which they can discuss both U.S. exports and imports, rather than having separate discussion agreements for the trade in each direction.
The change would mean a much greater share of export capacity
would be controlled by carriers that are members of a discussion
agreement, a change which could be controversial with some U.S. businesses.
The 15 container shipping companies that are members of the Transpacific Stabilization Agreement (TSA) (currently restricted to talking about the trade from Asia to the United States) said Tuesday they have asked the Federal Maritime Commission to modify their discussion agreement so that they can discuss freight rates in the westbound as well as eastbound direction.
TSA said once the amendment becomes effective, the lines would suspend activities of the existing U.S.-Asia carrier group, the Westbound Transpacific Stabilization Agreement (WTSA). Today, only eight carriers are members of WTSA, including COSCO, Evergreen, Hanjin, Hapag-Lloyd, Hyundai, “K” Line, OOCL, and Yang Ming.
TSA includes those same eight carriers and seven others, including APL, CMA CGM, China Shipping, NYK, Maersk, MSC, and Zim.
Niels Erich, a spokesman for the groups, said TSA members represent over 90 percent of the container capacity in the eastbound transpacific market, while WTSA's members have a smaller share. The combined group would also represent carriers with about 90 percent of the export container trade.
TSA Executive Administrator Brian Conrad said streamlining the agreements and cutting cost is the primary purpose of the filing.
Erich said while TSA and WTSA are jointly administered from a single office in San Francisco and only have a handful of employees, the individual shipping lines would be able to reduce administrative costs and the number of staff each line allocates to supporting the activities of the individual discussion agreements.
Conrad noted nearly all other major trade lanes with carrier agreements are represented by a single group which includes the entire roundtrip trade in its scope.
“The same lines carry the cargo in both directions on the same vessels, as part of their round-trip service rotations,” Conrad said. “Since they operate their business on roundtrip basis, it only makes sense to view the two segments as an integrated whole from an agreement perspective as well.”
Erich said the two-agreement structure has its origin in the fact that there were once separate rate agreements which were administered separately. The Asia North America Eastbound Rate Agreement was administered out of offices in Hong Kong, while the Transpacific Westbound Rate Agreement was administered from San Francisco.
Even after TSA and WTSA were created and their administration merged, Erich said running two organizations "made sense for a while because the two trades are so different in terms of their commodity mix and seasonality. It made sense to keep them separate because it made sense to have westbound expertise applied to westbound rates in the westbound agreement, for example.
"That's still true, but it makes more sense from the carrier point of view to look at the roundtrip, because beyond the differences there is also areas where they are complementary and you have to look at things like equipment positioning, slow steaming, and a whole range of operational issues such as loading and stowage," he explained. "And it is the same ships and they are part of global networks beyond this trade and it makes more sense to look at them in an integrated trade."
The discussion agreements say they meet U.S. law and those of Asian countries, including:
- Meeting and exchanging market information and jointly conducting market research.
- Representing carrier interests in consultations with government regulatory bodies and with designated shipper organizations.
- Developing voluntary, non-binding guidelines for rates and charges.
- Discussing ways members can manage costs and improve efficiency.
- Establishing common terms of service and standards for certain documentation, information systems development and other activities in the public interest, also on a voluntary, non-binding basis.
The proposed change will go into effect in 45 days, though the FMC could ask for additional information, which would delay the change until that information was provided and the FMC has another 45 days to review it.
The FMC could ask for a modification of the agreement, or if it felt the change would unreasonably increase rates or decrease service, seek to delay it through an injunction, though Karen Gregory, FMC secretary, said the commission has rarely taken that step.
Gregory said "since these are two important talking agreements and encompass the majority of U.S. containerized trade, the commission is definitely going to give this proposal its highest level of examination."
TSA is asking the amendment be filed for a 24-month trial period, subject to review at the end of that time.
Bruce Carlton, president and chief executive officer of the National Industrial Transportation League, the nation's largest shipper group, said his group is counting on the FMC staff and commissioners “to ask a lot of questions of the discussion agreement members and administrative body why it is necessary and what benefits to the trade there will be, and from our perspective, especially, what benefits will there be for the shipper.”
Carlton noted that for many years the NIT League has “not only not been in favor of discussion agreements, but believes they should be ended. That would require a change in U.S. law and we recognize that.
“We do not think they have any value to the customer, to the shipper,” he said. “They are clearly of some value to the carrier, because they have maintained the apparatus and the administrative cost of running it.”
Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), the leading organization for exporters of U.S. agricultural products, said “if the combination of the TSA and WTSA means an expansion of the carriers engaged in collective westbound rate setting, from eight carriers to 15, we are concerned.
“It only means that a greater percentage of the ocean service providers will be able to share and jointly plan pricing strategies, and avoid the reach of U.S. antitrust law, which applies to every shipper and every other business in and serving the U.S.,” he said.
AgTC “members do not support any expansion of a forum in which carriers can legally share what should be proprietary competitive information, and engage in discussions of pricing,” Friedmann said.
“We believe the carriers should talk with their shipper customers, and not with each other," he added. "Shippers want a relationship with their carrier, and do not want to wonder if the information they share with their carrier, is then shared with other carriers in the stabilization agreement.
The shippers wish to truly negotiate one on one with the carriers, and not be subjected to rates, surcharges, GRIs that are agreed upon by the carriers collectively.
“The carriers do not need a collective pricing discussion forum in the U.S./ EU trade or the Asia/EU trade. Why do they need it in the U.S./Asia and other U.S. trades? What benefit does this provide to the U.S. exporters?”
The scope of TSA and WTSA is trade between the United States and Japan, Korea, Taiwan, Hong Kong, China, Singapore, Malaysia, Thailand, Indonesia, the Philippines, Brunei, Vietnam, Cambodia, Laos, Myanmar (Burma), Pakistan, Sri Lanka, Bangladesh and the Russian Far East. - Chris Dupin