The proposed merger of the Transpacific Stabilization Agreement and its westbound counterpart, the Westbound Transpacific Stabilization Agreement, would give carriers an opportunity to reduce overhead and redundancies. Even more so, the single discussion group would focus carrier efforts on round-trip economics in the U.S.-Asia trades.
Shipping lines in the trans-Pacific trades on Tuesday filed a request with the Federal Maritime Commission to combine their eastbound and westbound discussion agreements into a single discussion group.
Carriers for years have maintained two discussion agreements in the Pacific. The 15-member Transpacific Stabilization Agreement covers the eastbound trade from Asia to the U.S. The 10-member Westbound Transpacific Stabilization Agreement covers the U.S. export trade to Asia.
Under the proposal, the two groups would become one, to be called the Transpacific Stabilization Agreement. The WTSA would cease to exist, at least for the 24-month trial period proposed by the carriers.
Discussion agreements are officially sanctioned organizations that allow carriers to jointly research economic conditions in a trade lane and discuss rate actions, all with immunity from U.S. antitrust laws. The TSA and WTSA regularly issue guidelines announcing the intent of carriers to take a rate action, such as increasing container rates by a specified dollar amount.
However, the discussion agreements have no enforcement powers, and their members are free to set their own rates with individual customers in confidential negotiations. Although cargo interests sometimes complain about collusion among carriers on rates, in reality, the trade is usually governed by supply-demand economics.
For example, despite the existence of the WTSA, freight rates on U.S. exports to Asia have dropped to low levels, and carriers say they are losing money on many westbound shipments. Some of the larger carriers in the Pacific have dropped out of the WTSA.
It is possible that by combining the two discussion groups, carriers will consider round-trip economics when issuing guidelines for the member lines. Until now, the two discussion groups held separate meetings, with each group focusing on its own eastbound or westbound trade.
Niels Erich, who serves as the spokesman for both groups, said they have not discussed the details of a merger, such as who would serve as officers. Brian Conrad for some time has served as executive administrator of both the TSA and WTSA.
Conrad said a combined discussion group is a logical development because many of the carriers are members of both organizations. “Since they operate their business on a round-trip basis, it only makes sense to view the two segments as an integrated whole from an agreement perspective as well,” he said.
The law states that the FMC has 45 days to collect industry feedback on the proposal. If the commission believes additional study is needed, it can extend the period for another 45 days. Therefore, if the merger is not blocked, it could occur by mid-January at the earliest or early March at the latest.