TSA EXECUTIVE: CONTRACT DEALS UNDER OSRA “START FROM SQUARE ONE”
TSA EXECUTIVE: CONTRACT DEALS UNDER OSRA “START FROM SQUARE ONE”
The new regime introduced by the U.S. Ocean Shipping Reform Act makes shippers and carriers start contract negotiations anew, independently of what big shipper accounts are doing, a senior executive of the Transpacific Stabilization Agreement and Westbound Transpacific Stabilization Agreement said.
Brian Conrad, deputy executive director of the two transpacific discussion agreement, told the Women in International Trade’s ocean transportation forum that “shippers can no longer hold out until a competitor signs a contract and then use the publicly filed terms to try and negotiate a better deal.” Confidentiality benefits the trade because “there is less holding out until the last minute to negotiate and sign,” he said.
“So shippers and carriers sit down at the negotiating table and each contract starts at square one, with the parties representing their own unique interests,” Conrad commented.
When contracts were not confidential, the result was a straight exchange of rate discount for volume committed, he said. Now, there are no reference points and shippers and carriers can reach one-to-one agreements.
A small shipper may be able to ship during the slack season, or offer return cargo that helps position the carrier’s equipment, or source from a market where the carrier wants to increase its presence, Conrad said.
“With a little creativity, a small shipper can conceivably negotiate better terms than a large competitor on the basis of service, rather than volume. And the carrier can offer better terms, in large part, because confidentiality provides the cover to do so,” he added.
In a separate development, Conrad said that westbound transpacific increases of $125 to $500 per FEU planned by carriers between January and July “have begun with an individual carrier deciding that enough was enough, taking and announcing the increase, and most other lines individually deciding to take similar action.”
He said that the rate increase process has been “bottom up” from the individual lines themselves, out of necessity. Westbound Pacific rates have dropped by 40 percent drop since late 1997, he said.
TSA and WTSA are discussion agreements that do not have the authority to set binding common rates and jointly negotiate service contracts. However, they make non-binding recommendations on rate levels.