ShippingWatch

Maersk Line downplays the effect of price agreement on the Pacific

The criticism of Transpacific Stabilization Agreement as a 1900th Century institution that only hurts the customers by artificially inflating prices is wrong, says Maersk Line, which is back in TSA after a 5 year absence.

Photo: Maersk Line

As a customer shipping a container of shoes or overalls, it might seem strange that the shipping companies competing for the job are also having meetings in which they work out the general price. It would be completely unheard of if, for instance, airlines were to sit down and come up with a price level for flights between London and Copenhagen.

For the same reason, the EU has banned the so-called conferences, at which the shipping companies would sit down to figure out, not least, the price of shipping a container from Asia to Europe. But in other places in the world, e.g. the Pacific routes, these meetings – or conferences – still exist. The most recent meeting was held in May, where container shipping companies such as Maersk Line, MSC, CMA CGM, and others, agreed on an indicative price for shipping containers between USA and Asia. At this meeting, the members decided to introduce a peak season surcharge on the routes between Asia and USA of USD 600 per forty foot container, effective this past Sunday.

Shippers: distorts competition

Global Shippers Forum, a guild for customers of the shipping industry, based in Britain, says that the fact that the major shipping companies are unanimously agreeing on shipping prices is a massive competitive distortion.

“It’s very abnormal that we still have agreements in which the shipping companies determine the prices. No other industrial sector has that kind of exception from the rules of competition. It is a 1900th Century way of doing business,” said Secretary General of GSF, Chris Welsh, to ShippingWatch, when the latest agreement was made.

Maersk Line left the cooperation in 2004, but reentered the TSA in 2009. According to the shipping company's longtime head of the Pacific, Lars Mikael Jensen, the criticism of the TSA’s activities is misguided.

“The TSA is not a conference that establishes prices that the members must follow. TSA cannot issue fines, and the individual shipping company decides its own prices. All discussions are voluntary, and we are dealing only with general discussions about price structures. In the end, the price is agreed upon between the shipping company and the customer alone. It is a fairly loose trade association,” says Lars Mikael Jensen, currently head of Maersk Line Asia-Europe.

According to Lars Mikael Jensen, this was also one of the reasons the shipping company decided to leave the TSA in 2004 – because the structure was too loose and discussions were rarely fruitful.

Then why did you decide to reenter the TSA in 2009?

“One, customers were asking us why we weren’t part of it, and why we were acting contrary to the rest of the industry, and two, we could see that discussions and market analyses that could be interesting for us were starting to happen. But there were customers who felt that we shouldn’t cooperate with an organization such as the TSA, along with our competitors. On the other hand, the cooperation helps keep prices manageable for the customers, as it does provide a certain stabilizing factor,” says Lars Mikael Jensen.

Spokesman for customers

He says that the rules for the work today are different from when Maersk Line decided to leave the TSA. A Shippers’ Advisory Board has been established, a kind of spokesman body for the American customers. In addition to this, the American authorities must be notified about all agreements and meetings.

“I do, to a certain extent, understand those skeptical toward the TSA. But the truth is that the prices fluctuate just as much on the Pacific as they do on Europe-Asia,” says Lars Mikael Jensen.

The new agreement is just the latest one in a long line of agreements that the shipping companies make every year on the Pacific.

Global Shippers Forum is working on a major campaign to get rid of agreements such as the TSA.

“The agreements have great significance – both in the short and long term - for the customers of the shipping industry. That the shipping companies have the opportunity to discuss and agree on prices puts the customer at a disadvantage,” says Chris Welsh.

The major members of the TSA are, among others, Maersk Line, APL, China Shipping Container Lines, CMA CGM, Cosco Container Lines, and Hanjin Shipping.

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