TSA NAVIGATES CHANGING PRICE WATERS
Byline: Scott Malone
NEW YORK — It’s been two years since Congress passed a law allowing ocean carriers to set confidential rates with their customers, but over that time, a group of major carriers working the Pacific Ocean — one of the highest-volume trade routes for the apparel industry — has sought to continue to work together to keep their prices up.
In the face of a slowing economy, that group, the Transpacific Stabilization Agreement, is now reconsidering what its role in the industry should be.
Since 1998, the TSA has been most familiar to apparel shippers for making annual November recommendations on how much steamship companies should raise their charges to ship goods from Asia to the Americas. They were supported by economics — increasing demand in the U.S. for Asian imports, limited ship space and rising fuel costs.
The group calls itself a “discussion agreement” and its recommendations on rate increases are not binding. It enjoys a limited exemption from U.S. antitrust law, which generally prohibits competing companies from working out pricing strategies together.
However, before the Ocean Shipping Reform Act went into effect in May 1999, its members had a powerful motivation to stick together on pricing — all ocean carrier contract rates had to be publicly disclosed, which meant that even the smallest shippers knew how much their bigger competitors were paying.
OSRA changed that by allowing shippers and carriers to negotiate confidential contracts, a move which was intended to encourage competition in the shipping industry.
Yet over the past two years, the TSA has continued to recommend price increases and surcharges to its members. Now, with the U.S. economy starting to cool and demand for space on ships starting to soften, the group is rethinking that strategy.
“We are in a very different environment,” said a spokesman for the San Francisco-based group. “The discussion agreements have inherited a lot of practices that date back to the rate conferences,” predecessors which tightly regulated carriers’ doings and could set binding price levels for the industry.
“What we are in the process of doing is reevaluating all of those to see how we can best accommodate the needs of carriers and shippers in this new environment,” he added.
Albert Pierce, managing director of the TSA, as well as the Westbound Transpacific Stabilization Agreement, which covers shipping from the Americas to Asia, has said the peculiarities of the shipping trade justify allowing carriers to put their heads together on pricing.
“Some other global businesses face similar concerns. But I cannot emphasize enough the fact that liner operators are expected to serve as common carriers in all trade segments,” he said this spring at a conference sponsored by the shipping newspaper, Journal of Commerce. “If an apparel maker finds taxes or labor agreements unfavorable in, say, Malaysia and moves [production] to China, or to Ecuador or Eastern Europe, that’s accepted business practice. A transpacific carrier, on the other hand, will not generally simply decide to drop Thailand and Korea from its service rotation when times are tough — it will somehow make up costs and keep on sailing.”