Oberstar Calls for Broad Ocean Shipping Reform

JOC Staff | Jun 11, 2010    The Journal of Commerce Online – News Story

House leader would end carrier antitrust immunity, impose new shipper protections

Decrying ocean container carrier business practices, the head of the House Transportation and Infrastructure Committee called Thursday for the end of antitrust immunity for vessel operators in the United States along with a wide range of new restrictions aimed at protecting shippers.

Rep. James L. Oberstar said carrier actions including rapid enactment of surcharges, bumping shipments from vessels and refusing to carry certain containers have caused widespread problems for retailers, costing them business as they try to recover from the recession and driving up costs for American consumers.

Oberstar’s strong statements at a shipping industry policy forum raised the possibility that Congress could undertake the most sweeping look at ocean transport regulation in more than a decade and impose new restraints on how carriers operate in the market and interact with their shipper customers.

“I think we should end the antitrust immunity that allows the carriers to talk to each other about rates, and if we replace that with full competition there will be a real marketplace that would see improvements in rates and service and delivery to consumers,” the Minnesota Democrat told the annual Washington Freight Transportation Policy Forum of the National Industrial Transportation League.

Oberstar did not say he has prepared legislation, and there’s likely little chance of drawing up and passing an ambitious new bill in the short period left before this fall’s elections. But his comments marked the strongest statement yet from a public official about controversies that have roiled the container shipping world since last year, from volatile swings in pricing to widespread reports of “rolled” containers in Asia and complaints from U.S. shippers of container shortages that are hurting export opportunities.

Pointing to comments from shippers at a recent hearing in Congress, Oberstar took aim at the broad state of the container shipping business since last year’s downturn and detailed specific areas he wants to address, including regulation of surcharges, limits on vessel sharing agreements, and deeper Federal Maritime Commission oversight of the basics of shipper-carrier contract relations.

That includes, he said, a bar against “the practice of bumping and rolling” containers, something shippers said has become especially prevalent in Asia as demand for space to Europe and the United States has far outstripped vessel capacity. Oberstar said new barriers could be modeled on the protections airline passengers have when they buy tickets.

“Aviation law prohibits airlines from engaging in deceptive practices and overbooking a flight without providing compensation. We need to protect shippers and consumers. We may have legislation to direct the (Federal Maritime Commission) to prohibit such deceptive practices,” he said.

He said he is particularly concerned with reports from some shippers that some carriers have refused to board containers not owned by the carrier. “e need network neutrality in ocean transportation,” he said.

And he criticized the carrier surcharges that have increased rapidly over the past year. “There are charges that are not necessarily based on costs,” he said. “We have to clarify that they have authority on such charges – do they provide notice in advance of increases, are there explanations of the charges? There has to be a process so shippers and consumers are not at a disadvantage.”

Oberstar says new regulation could include restrictions on the vessel sharing agreements that carriers have used to extend services while spreading risk. “The European Union restricts VSAs to 30 percent of the capacity in a single trade. That may be a reasonable place to begin,” he said.

“The ocean carriers sold the world on just-in-time,” he said. “It’s something they marketed and the shippers of the world believed them. And now the carriers have failed to live up to that promise.”

Congress has not broadly addressed ocean regulation since the Ocean Shipping Reform Act of 1998, which brought a new measure of deregulation to the industry following the Shipping Act of 1984.

FMC Extends Capacity Fact Finding For Three Months

R.G. Edmonson | Jun 23, 2010   The Journal of Commerce Online – News Story

Commission to pursue fact-finding through peak shipping season

The Federal Maritime Commission granted Commissioner Rebecca Dye a three-month extension of her fact-finding into vessel capacity and equipment shortages, putting off completion of a report until the end of this year’s peak shipping season, The Journal of Commerce learned.

Sources within the commission said the extension was granted in a closed session Monday, when the fact-finding was due to be completed. The investigation began in March after U.S. exporters complained they were unable to secure containers and chassis, and that carriers’ reduced schedules had curtailed vessel capacity.

The issue also attracted congressional attention. Rep. Elijah Cummings, D-Md., chairman of the House Transportation subcommittee on Coast Guard and maritime transportation, led a hearing on March 17 at which FMC Chairman Richard A. Lidinsky Jr. announced the fact-finding mission.

Cummings is scheduled to hold a follow-up hearing June 30.

Shortage of Ocean Containers

Peter Tirschwell | Jun 18, 2010   The Journal of Commerce Magazine – Commentary

There is a disturbing undercurrent in the chaotic scramble in Asia for slot capacity on ocean container lines, at least for shippers: a shortage of containers themselves. This threatens to prolong the capacity squeeze beyond the period when everyone would presume the return of laid-up capacity would bring vessel supply and demand back into balance.

It’s a sign of a growing concern as summer begins, when the year’s strongest volumes are just a few weeks away. And, although container construction is rebounding rapidly from a virtual standstill last year, unprecedented — and perhaps long-lasting — market dynamics are emerging.

Box manufacturing is not rebounding as quickly as demand would warrant, in part because it appears skilled laborers in coastal China, where virtually all containers are built, are not as plentiful as they once were, possibly prolonging the period of undersupply. More significantly, longer-term trends suggest even more boxes will be needed to satisfy the same level of demand the Asia-based trade lanes have seen in the past.

These developments include slow-steaming by carriers — which some believe may persist as long as oil prices stay high — as well as the extension of supply chains deeper into China and the development of two-way trade in major markets that had been heavily imbalanced.

In an interview last month in Geneva, we asked Gianluigi Aponte, head of Mediterranean Shipping, whether there is, in fact, a looming container shortage.

Here is his full response: “I believe it’s true. I will give you an example. When the dollar was very strong, we were carrying full vessels to the States. But our ships were coming back to Europe and Asia with very few full containers. We were repositioning mainly empty containers. And so what is happening today is that we carry, let’s say 3,000 containers to the States, and we come out with 3,000 containers full. What happens when you do this is that the 3,000 containers that you brought in, they go for discharge to the client and they come back empty. And they go to another client to be filled again and come back full. And then they are shipped to the destination. When they get to the destination, they go to the client, who has to break down the container and bring it back.

“So the idle time of the container in the States, if before it was a week, now has become three weeks, and the same in Europe. So in other words, where you needed, let’s say two containers, now you need six containers. That is the reason why today there is a shortage of containers, and this is worldwide. For example, China was importing very little and exporting a lot in the past. Today, they are still exporting a lot but they import a lot because the country is starting to consume.

Add to this slow-steaming, which requires an estimated 5 to 7 percent more containers to carry the same amount of cargo, and it’s clear that new operating dynamics are in play.

The pressure on manufacturers is building. Since the third quarter of 2009, when factories began reopening after a year of inactivity, 34 are reportedly now in production and will turn out an estimated 1.9 million TEUs this year, more than five times last year’s total but still less than the 2.6 million to 4.2 million produced annually before the recession, according to a May 18 Nomura Securities report.

Given an expected 1.5 million TEUs of disposals (some believe that estimate is high), Nomura estimates the global container fleet will grow only 1.9 percent this year to 27.6 million TEUs. This is against forecast cargo volume growth of 10 to 12 percent. Nomura sees the global fleet growing just 7 percent in 2011. That sounds like a shortage, and there are signs of that in the market, with “sweeper” ships appearing with greater frequency at U.S. ports, carrying away nothing but empties, and box lessors reporting unheard of utilization levels of 98 percent.

“We’re trying to get every single container we can get our hands on from the factories,” said John Maccarone, president and CEO of San Francisco-based lessor Textainer.

TSA Carriers Implement and Increase Peak Season Surcharges


The carrier members of the Transpacific Stabilization Agreement (TSA), FMC Agreement No. 011223, serving the East Asia/USA trade lane have recently implemented Peak Season Surcharges as recommended by the group’s 2010 Revenue Recovery Plan. Strong demand for service in the trade has prompted Carriers to implement these surcharges earlier than planned and to amend their tariffs to increase the surcharge amounts later this month or on August 1, 2010.In their 2010 Revenue Recovery Plan the TSA Carriers noted a Peak Season Surcharge (PSS) of US$ 400 per FEU to be effective August 1, 2010. This surcharge was planned to address higher cargo handling and equipment positioning costs during the peak season. Due to strong demand, many of the TSA Carriers implemented a PSS in this trade lane as of June 15. In recent weeks, Carriers have amended their tariffs to increased PSS amounts effective in late July or on August 1. The increased PSS amounts vary; ranging from US$ 600 to $1200 per 40ft ctr. The PSS is generally at the lower range on shipments to US Pacific Coast Ports and higher to US Inland Points and to US Atlantic Coast Ports. Some carriers have included an expiration date of November 30 for this PSS, but many have not included an expiration date for the PSS.This PSS, combined with the current bunker adjustment factors (BAF), and recently implemented General Rate Increases (GRI), produces total ocean freight charges that are at the highest levels seen on in the East Asia/USA trade lane in several years. On the heaviest volume routes, for example, from Hong Kong to Los Angeles, the lowest total freight now available on the spot market is about $2600 per 40ft ctr.The TSA’s 15 carrier members are American President Lines, CSCL, CMA-CGM, COSCO Container Lines, Evergreen Marine, Hanjin Shipping, Hapag-Lloyd Container Line, Hyundai, Merchant Marine, “K” Line, Maersk Line, Mediterranean Shipping, NYK Line, OOCL, Yang Ming Marine and Zim Integrated Shipping Services. Visit www.tsacarriers.org.


FMC Reports to Congress, Requests Greater Authority Over Carrier Contracts


Chairman Richard A. Lidinsky, Jr. and Commissioner Rebecca F. Dye of the Federal Maritime Commission (FMC) visited the House Committee on Transportation and Infrastructure, Subcommittee on Coast Guard and Maritime Transportation for a Subcommittee hearing which focused in part on the status of the Commission’s investigation into vessel capacity. The Commission recently initiated Fact Finding Investigation No. 26 into vessel capacity and equipment availability in the United States export and import liner trades, in response to shipper complaints.

At the June 30 hearing Commissioner Dye reported in detail of the status of the investigation. According to Commissioner Dye the investigation focused on vessel space shortages, chronic container shortages in certain parts of the U.S., and ocean carrier practices regarding service contracts. The FMC recently conducted a series of confidential interviews around the country to gather information for the investigation. Commissioner Dye along with FMC Chairman Richard Lidinsky reported that while vessel capacity has increased in recent months, this increase has not kept pace with growth in U.S. trade. Furthermore, growth in demand for container imports and exports in the upcoming peak shipping season may strain current vessel capacity. Container availability for export cargo in some regions of the country may continue to be difficult and expensive to arrange. In March of this year, President Barack Obama directed agencies “to use every available federal resource” to increase U.S. exports over the next five years, and the FMC is making a strong effort to support this directive. Commissioner Dye presented the following recommendations for immediate action which were approved by the Commission at its meeting on June 23rd:

  • Rapid Response Teams: Teams within the Commission’s Office of Consumer Affairs and Dispute Resolution Services (CADRS) have been organized to quickly address and help resolve disputes between shippers and carriers – particular problems involve cancelled bookings, rolled cargo, and container unavailability.
  • TSA and WTSA Oversight: The Commission will increase oversight of the Transpacific Stabilization Agreement (TSA) and the Westbound Transpacific Stabilization Agreement (WTSA) by requiring transcripts of certain Agreement meetings of these groups whose member Carriers service the USA-Asia trade lanes.
  • Global Alliance Oversight: The Commission has directed staff to prepare recommendations for prompt Commission action on ways to increase oversight of global vessel alliances.
  • Extend Fact-Finding Investigation: The Fact Finding Investigation No. 26 is extended to November 30, 2010. This will allow the Commission to continue the investigation through the peak shipping season and to fully develop additional solutions. The interview process also will continue during this time.

Chairman Lidinsky also suggested to the Subcommittee that Congress begin considering adjustments to the Shipping Act that would complement Commissioner Dye’s initiatives. He suggested a modification to give the Commission a greater role in resolving disputes between importers or exporters and ocean carriers quickly through mediation or arbitration. He also suggested a regulatory or legislative response to ocean carriers who refuse to provide or accept shipping containers from U.S. exporters. Representative Elijah E. Cummings, Chairman of the Subcommittee on Coast Guard and Maritime Transportation, requested a preliminary list of such legislative proposals from the Chairman within 30 days.