Growing irrelevance signals end of TSA after 30 years in existence

US liner talking shop no longer fit for purpose as transpacific operators eye new solutions to volatile rates

The Transpacific Stabilization Agreement (TSA) — a talking shop that has enabled lines to discuss freight rates and capacity for the past 30 years — will close down next week after deciding its mission is “no longer viable".

The organisation, which is based in Oakland, California, will officially close its doors on 8 February in a reflection of its increasing irrelevance on the eastbound trades from Asia to the US. That has resulted in the defection of several liner operators seeking fresh solutions to volatile freight rates, including most recently Maersk Line towards the end of last year.

The end of the TSA has led some to question the future for similar discussion forums, such as the Intra-Asia Discussion Agreement.

Daniel Richards, a container shipping analyst with Maritime Strategies international, said the end of the TSA demonstrated how the liner shipping alliances had already taken over on the transpacific trade.

“It represents how power has shifted with the new alliance systems,” he said. “It’s hard to see what success they had in coordinating activity given the fall in rates.”

Others pointed to ongoing risk for lines involved in any agreement that could be regarded by competition authorities as cartels.

“Certainly, the big lines are withdrawing because they think there’s a legal risk," Container Trades Statistics managing director Rod Riseborough said. "They just don’t want to be involved in anything that’s going to be a potential bun fight.”

Lars Jensen, a partner at SeaIntelligence Consulting, wrote that the demise of the TSA was “the inexorable logic of the market”.

“In an environment with a rapidly declining number of carriers, and a strong increase in data availability and transparency, the need for such organisations also seems to be reducing unless they can redefine their roles,” he said.

Announcing the closure, TSA executive administrator Brian Conrad said significant changes in the operational and commercial environment in the transpacific lane, as well as in the worldwide liner sector, were likely to continue.

“During these challenging times in shipping, it became apparent that the TSA’s original mission was no longer viable,” he said.

He added that “the commercial and operational environment in the transpacific trade and, more broadly, in ocean transportation worldwide, has experienced significant changes in the past few years that are likely to continue through 2018 and beyond”.

In recent years, the TSA had seen its influence dwindle as several leading liner operators left the body, which claimed to represent liner operators in the transpacific trades.

The final nail in the coffin arrived in early December last year when Maersk Line announced it was withdrawing from the TSA as part of its commitment to regulatory authorities linked to its acquisition of Hamburg Sud.

Alphaliner estimated that Maersk’s departure would leave the TSA carriers with a 65% share of the transpacific trade, compared with a peak of more than 80% in the past. It follows the resignation of K Line, NYK and Zim, as well as shrinking numbers due to bankruptcy or mergers of Hanjin Shipping and China Shipping Container Lines.

Rigid replacement

TSA was established in 1989 and, over time, replaced a more rigid rate conference system in the Asia-to-US market. In addition to commercial initiatives, it provided a forum for the lines to discuss trade conditions, market developments, and business and economic trends.

“TSA has, for many years, served a valuable function to the carriers and other industry stakeholders,” said Conrad, who credited the body with helping grow and maintain a wide range of carriers operating in the trade over the long term.

But in recent years the TSA, which is rooted in the old “conference” system that used to set freight rates and the behaviour of liner operators, had been bypassed by those liner operators. Competition regulators ensured that its European counterpart, the Far East Freight Conference, shut its doors in October 2008.

Moreover, the TSA had not adopted any general rate increase (GRI) guidelines since November 2015.

Attempts by liner operators to implement 18 GRIs of between $400 to $1,000 per teu in 2017 were made entirely outside of the TSA and were largely unsuccessful. That was reflected in the increasing volatility on the transpacific trades and set a worrying tone for carriers, which are set to negotiate contract rates in May.

Further ahead, lines are experimenting with other ways of managing volatility in the transpacific using digital freight platforms.

Last week saw Maersk Line join five other liner operators in investing in the New York Shipping Exchange, which will pilot an agriculture export freight service from the US to Asia in March.

Carriers have shelved any concerns for now in order to cash in on a surge of shipments out of China ahead of the Asian holidays.

Tight space in the all-water services to the US East Coast was said to have helped the carriers drive up rates on services to the US West Coast. The World Container Index, assessed by Drewry, records rates on the Shanghai-Los Angeles route as gaining $85 per 40-ft container (feu) to $1,445 per feu last week, although they are still one-third lower than the same time last year.