TSA Chiefs Vow No Rate War

The CEOs of the container shipping lines in Transpacific Stabilization Agreement said Tuesday they will try to ensure service contracts for the 2009-2010 shipping season do not send rates plunging to the non-compensatory levels that hit the spot market this winter.

The TSA lines also said in an announcement they intend to ensure the progress they made in recovering bunker fuel costs in their 2008-2009 contracts in the upcoming season.

At their most recent meeting in Tokyo, the 14 TSA carrier CEOs expressed their intention to avoid any further erosion of existing rate structures that have been undercut by deteriorating demand and bids by carriers to fill gaping capacity.

“In spite of TSA members earlier announced intention to expire these unsustainable rates, carrier behavior not only failed to arrest the volatility in the trade, but contributed to further erosion in a number of cargo segments, most significantly in the spot market,” said TSA Chairman Ronald D. Widdows, who, as CEO of Neptune Orient Lines, has been sharply critical of rate-cutting by other carriers.

“There have also been isolated incidents where these non-compensatory rate levels have found their way into a small number of new contracts,“ he said in the TSA announcement.

“Everyone involved in this trade faces the certainty of significant losses if quick action is not taken to approach the upcoming round of contract negotiations with a renewed focus on rates that will support continued servicing of this market. It will be evident shortly whether member lines individually can rise to the challenge,” Widdows said.

The first step in stabilizing the trade will be the action by lines on an individual and non-binding basis to let the reduced short term/spot rates expire by the end of June at the latest.

The second step will be for the TSA lines to establish rates for 2009-2010 contracting at levels $500 to $600 per 40-foot container above the low levels that some rates fell to over the last few months.

In addition to achieving higher core rates, member line CEO’s said they must continue to seek further improvements to the number of contracts that contain full floating bunker and inland fuel recovery provisions.

In announcing their plans, the TSA lines acknowledged shippers and carriers alike face difficulties in Asia-U.S. trade, as the continued global economic downturn has affected consumer demand in the U.S. and curtailed manufacturing output and exports from Asia.