Agriculture Exporters Praise FMC

U.S. agriculture exporters are praising a Federal Maritime Commission fact-finding investigation into vessel and container capacity, and recent initiatives by the agency that it says will help exporters.

Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), said there has been a “turn in attitude, a sea change in view of the purpose of the FMC. It has been highly constructive.”

In the past, Friedmann said he and others did not view the FMC as “an entity trying to facilitate exports. To the extent that they are now, that is a welcome development.” He praised comments from FMC Chairman Richard Lidinsky that he will work to assure sufficient capacity for agriculture exports.

“The people who have been most involved in moving the legislative and regulatory process forward, that is the agricultural exporters, are very supportive of what the FMC is doing,” he added.

Friedmann noted AgTC members testified before Congress in hearings that eventually led to the introduction of a bill by Rep. James Oberstar, D-Minn., to eliminate antitrust immunity for liner carriers and give additional powers to the FMC. Group members also participated in the FMC capacity investigation, and in face-to-face discussions with ocean carriers initiated by the FMC this summer.

AgTC’s praise for the FMC probe contrasted with criticisms leveled by the National Industrial Transportation League, which expressed disappointment in the limited amount of information the FMC has released about the fact-finding investigation, and what it said was a suggestion by the FMC that “the solution to the problems experienced by U.S. exporters and importers be developed through collaboration between ocean carriers and their customers with the FMC taking on the unconventional role of a commercial facilitator.”

The NIT League suggested it might seek more information about the FMC investigation through a Freedom of Information Act filing, “with all appropriate redactions to protect the identities of those interviewed.”

Friedmann said the decision by FMC Commissioner Rebecca Dye to interview shippers confidentially during the fact-finding investigation “provided an environment in which they could get real information and real experiences from shippers and forwarders who otherwise would not have come forward.” He added, “exposing that information or those individuals who testified would be not only a tremendous breach of faith but I am not sure legally they could do so.”

Another group, the Pacific Coast Council of Customs Brokers and Freight Forwarders, also issued a statement applauding the actions of the FMC, saying many of its members had participated in the fact-finding investigation and said the FMC had been “true to its word to keep these interviews with forwarders and shippers confidential; had it not made that commitment, many forwarders and shippers would not have come forward, and the Commission would not have the information it needed in order to initiate solutions to their concerns.”

Friedmann said he was pleased with actions taken by the FMC as a result of the fact-finding investigation.

These include the creation of so-called “rapid response teams” to mediate disputes between shippers and carriers.

“Those are not to be underestimated, they are precisely what many shippers need, and what in fact agriculture exporters are utilizing right now,” he said. He said they are designed by the FMC to help in “the real process of ocean shipping, when there are hiccups in the process which are undermining agricultural exports.

“For example, if accurate and timely bills of lading cannot be obtained before a letter of credit expires, major agricultural exports cannot be made, sales fall through. The FMC has committed resources to addressing that very real problem.

Friedmann also praised the FMC’s decision to form “working groups” to address issues such as service contracts and container availability.

He said the FMC said it would initiate the service contract review after its investigation found “smaller shippers could use some assistance in understanding ocean transportation contracts and in gaining provisions that were fair. I think that there was a sense … that smaller shippers, in particular, do not have the negotiating leverage to get provisions that many would say would be reasonable.”

Friedmann noted that six agriculture exporters participated in face-to-face meetings arranged by the FMC with six senior carriers executives this summer.

He felt these were “very constructive” and said “this hasn’t happened before and again it is a change in the commission’s view of what it can do to facilitate commerce in a non-adversarial way.”

Will meetings like this have a long-term benefit on large numbers of shippers?

“Time will tell,” he said. “The FMC has been around since 1961, and we are three months into the FMC taking a different approach which is open and welcoming to exporters and importers.” — Chris Dupin

Capacity Constraints, Take Two

Supply and demand are falling into balance next year, but a second wave of tight supply is already appearing on the horizon.

Shippers are more likely to find supply and demand in better balance going into the new year, a year after burgeoning U.S. import and export demand outstripped the supply of ships and sent companies scrambling for vessel space.

But some industry observers and carrier executives warn a second wave of constrained capacity is forming, a wave they say is fed by an ongoing restraint in the market for ship finance, and which could leave shippers facing tight capacity again as early as 2012
Ocean carriers have brought laid-up vessels back into service and are taking delivery of enough new ships to meet expected demand in 2011. They’re also sending messages, however, that they will carefully manage supply and will not deploy more capacity than immediately needed.

Carriers and analysts alike say there will be plenty of capacity available to handle any growth in demand next year, but even that ship capacity is not the whole story for many shippers. Container equipment, operators say, still will be in short supply in 2011.

“The slow recovery has affected the mindset of the people who build containers, so there’s been a capacity reduction all across the chain, not just the people who build ships, but also containers,” said Ron Widdows, CEO of Neptune Orient Lines, parent of container ship operator APL.

The two Chinese companies that make containers have restarted production, but are not yet producing enough boxes to meet expected needs next year, and those they are making are expensive — $2,700 for a 20-foot container, compared with $1,500 per box three years ago, Widdows said.

The potential constraint on container supply is one part of what a growing lineup of freight industry executives is warning will be a kind of delayed impact of the 2008-09 downturn.

The cutbacks in capacity and costs, they say, have left carriers just as focused on lean inventory as their customers, with little enthusiasm or financial backing to bring back capacity in big numbers.

That’s especially true, some say, in the United States, where transport networks contracted sharply during the deepest economic downturn in generations.

“It won’t be long, if we get any kind of good economy, until we’re back where we were in 2006, with chronic shortages of truck and rail capacity,” Matthew K. Rose, chairman, president and CEO of BNSF Railway, told attendees at this month’s Transcomp/Intermodal Expo meeting.

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Ocean Carriers Face Challenges on 2011 Rate Hikes

High inventory levels, only modest capacity cuts make increases less likely.

Ocean container carriers may struggle to push through freight rate hikes planned for January, an analyst said.

The conditions that enabled container lines to sharply boost rates at the beginning of 2010 are “noticeably absent” for the next round of increases, according to Paris-based Alphaliner.

Carriers were able to push through rate hikes in January 2010 because deep capacity cuts on Asia-Europe and trans-Pacific routes coincided with a surge in cargo demand driven partly by inventory re-stocking in the U.S. and Europe.

A shortage of containers further tightened capacity, triggering a scramble for space that enabled carriers to push through a series of rate hikes that sparked the recovery in the container shipping market.

These factors are missing in today’s market as carriers prepare to lift rates by $500-$600 per 40-foot container on Europe-Asia routes and set a $400 per 40-foot guideline increase for the 2011/12 trans-Pacific contract season.

“Carriers have made only modest capacity reductions during the current winter period, and some even continue to add new capacity despite only moderate utilization levels,” Alphaliner said.

The current weekly capacity on the Far East-Europe and Far East-North America routes is 19 percent higher than 12 months ago.

The idled box fleet currently stands at 147 container vessels with a combined capacity of 356,000 20-foot equivalent units compared with a peak of 1.5 million TEUs a year ago.

Meanwhile, inventory levels in the U.S. reached a new record high in November as stock replenishment appears to have reached a peak.

Shipping volume peaked early this year and no significant surge in cargo volume is expected in late December on the eve of the planned rate hikes.

Carriers are counting on a repeat of the market rally in January 2010 to reverse the steady decline in freight rates, which has seen spot rates from China dropping by 29 percent from their July peak.

But modest capacity cuts and high inventory levels “suggest that the carriers’ planned price increases will be less successful this time,” Alphaliner said.

Barring further capacity cuts there will be sufficient capacity in late January when shippers rush to move goods ahead of China’s Lunar New Year holidays which begin on Feb. 3.

The Journal of Commerce Online – News Story