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.

Experience Tells it All

When Wayne Knewtson decided to sell directly to Asian markets, he came to NSC for logistical support. Knewtson, a farmer in Southern Minnesota, moves his grain from his farm to a transloading facility where it is loaded into containers and moved by rail to the port.

“Many of the ports we ship to in Asia are smaller ports and North Star is able to get our shipments to most of the smaller ports because of the multiple relationships they have with shipping lines,” says Knewtson. “North Star has experienced people who have been in the business a long time and know how to get things done.”

TSA Carriers Implement and Increase Peak Season Surcharges

SIGNALS NEWSLETTER – JULY 6, 2010 EDITION

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

SIGNALS NEWSLETTER – JULY 6, 2010 EDITION

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.

Logistic Support Aids Midwest Soybean Producer In Selling Direct on the World Market

Based on strong export sales, primarily to China, the USDA raised its 2008/09 soybean export projection to 31,300 million metric tons (mmt) in its February 2009 World Agricultural Supply Demand Estimates (WASDE). Soybean exports are now projected to be 4.5 percent higher than the USDA January estimate and less than one percent lower than last year. This is good news for soybean producers such as Wayne Knewtson, a Minnesota farmer and marketer of grain products to world markets through his company, Knewtson Soy Products Company. Wayne gets his containers from North Star Container, LLC, and a lot of logistical support to make certain they reach their destinations safely.

After going through third parties for many years to sell his grain on the world market, Wayne took the plunge in the late 90s into exploring going direct to buyers out the U.S. It was a financial decision that has both risks and rewards. The reward is being able to retain a greater margin of profit because he no longer has to share profits with the middleman. The risks are in finding the markets, being able as a small producer compared to the Fortune 500 agribusinesses in finding the resources needed to get his soybeans from Southern Minnesota to ports in China and Japan and other world markets.

After many hours of due diligence and two trips to Japan to exhibit at trade conferences, Wayne got his first direct sale in 2002, earning a $1 or $2 more per bushel than he could have secured through a third party. He began exporting his soybeans in containers to ports in Japan. Getting to the right ports presented some challenges as the shipping lines available to him did not regularly visit some of the smaller ports where his products were destined.

About two years ago, Wayne attended North Star Rail Intermodal’s open house at the newly opened NSTerminals transloading site in Montevideo, Minn., where he was re-acquainted with professionals now on North Star’s team who he had engaged at former companies to ship grain products. Because of his excellent service experience with this team, he began working with Bob Reinecke, president of North Star Container to access containers and arrange shipping to several Asian ports.

“North Star has the relationships that enable my shipments to reach some of the smaller, more out of the way ports that I had challenges reaching,” says Wayne. “Because they have contracts with multiple shipping lines, they also get a good rate for me.”

“North Star has professionals who are very experienced and know how to get things done,” say Wayne. “For example, when exporting products, documentation is always a concern. But, they get the paperwork to the port in time for my buyers to claim their freight.”

In addition to his seed and soy products businesses, Wayne and his son also farm about 2,000 acres that provide a portion of the soybeans they export. They acquire the remainder from other soybeans producers in order to meet the growing needs of the markets both in and outside the U.S.

Being able to have North Star Container as a cost-effective and reliable partner on the logistics side, allows the Knewtsons to continue to expand their agribusiness from the traditional family farm model to one of global provider of grain and grain products.

North Star Container International Opens Chicago Office

Grain and Grain Products Shipped to Global Markets

NAPERVILLE, ILL. — North Star Container has opened an office in the Greater Chicago area to serve suppliers of grain and grain products shipping commodities to markets in Asia and Europe. Containerized shipping lowers costs and increases profitability for farmers, processors and ethanol producers. North Star Container (NSC) is a full service non-vessel operating common carrier (NVOCC) that also has operations in Minneapolis.

“Containers allow us to maintain the quality of the products being shipped,” says Robert (Bob) Reinecke, president of NSC. “By combining short-line railroads and containers, we bring the containers closer to the product origination point, again saving transportation costs for our customers.”

North Star Container’s scheduled intermodal train service enables customers to commit specific quantities in advance to global customers on a year round basis, giving both sellers and buyers abroad the ability to secure product more efficiently with greater profit margins. In the Greater Chicago area, commodities are transloaded from trucks to containers at a number of terminals contracted by NSC. In addition to the intermodal terminals, NSC has negotiated contracts with several major shipping lines serving the Asian and European markets.

NSC ships:

Distiller’s dried grains solubles (DDGS), a by-product of ethanol production that is used for livestock and poultry feed.
Identity-preserved grains and grain products that need their unique pedigrees maintained as they move from farms or elevators to their final destinations.
Other high-quality grains and grain products that can command higher prices because they are not mixed with lesser quality products and arrive in sealed containers that prevent contamination.

Reinecke joined North Star Container in January bringing more than 20 years of experience in global shipping with CP Ships and Hapag-Lloyd. He has extensive experience in linking Midwest commodities with global markets. While with CP Ships, Reinecke helped launch their Midwest Transpacific providing additional volumes and services for Midwest import/export.